Crude oil higher; supply tightness weighs against demand concerns

Investing.com -- Oil prices traded higher Monday, helped by indications of supply remaining tight, but overall sentiment remains weak on concerns over slowing U.S. economic growth and a tepid recovery in China.

By 08:40 ET (12:40 GMT), U.S. crude futures traded 0.4% higher at $70.33 a barrel, while the Brent contract rose 0.4% to $74.43 a barrel.

The crude market has started the week on a positive note as traders have sought value at battered levels, helped by the idea that global crude supplies could tighten in the second half as the Organization of the Petroleum Exporting Countries and its allies, including Russia, react to falling levels by making additional output cuts.

OPEC+, as the group is commonly known, announced in April an additional voluntary production cut of just over 1 million barrels per day, starting in May. However, this hasn’t had the desired impact on prices, raising speculation that they could move again in June.

Meanwhile, flows of northern Iraqi crude oil to Turkey's Ceyhan port have yet to resume, and the number of wildfires in Canada’s main oil-producing province is rising, potentially stopping production for safety reasons.

That said, data from Bloomberg suggests that Russian crude oil flows to international markets are rising, even as the country insists it is slashing production.

This could prompt the G-7 members, who meet in Japan later in the week, to discuss further ideas to isolate Russia for its invasion of Ukraine, using the energy markets.  

Both benchmarks fell last week for a fourth consecutive week, the longest streak of weekly declines since September 2022, over concerns a recession in the U.S. would hit demand for crude in the largest consumer in the world.

Additionally, data out of China has suggested that the second-largest economy in the world is suffering an uneven reopening from its COVID restrictions.

China will release April industrial output numbers on Tuesday, followed by further trade data for April later in the week, and these numbers will be studied closely for signs of growth.

The International Energy Agency will also release its latest monthly oil market report on Tuesday, which will include the Paris-based group’s latest outlook for the market. 

“Given current concerns over the demand outlook, the market will be on the lookout for any revisions to their demand numbers,” said analysts at ING, in a note.

The market will also be keen to hear any news on a resumption of U.S. buying for its reserves after U.S. Energy Secretary Jennifer Granholm told lawmakers last week that the administration hopes to start refilling reserves after a congressionally mandated drawdown ends next month.