Oil extends gains amid fewer recession, banking contagion headlines

Investing.com — ‘The less the news, the better’ seems to be the case for oil longs.

Crude futures extended their gains, rising almost 3% in Monday’s session which added to Friday’s 4% rally, as fewer headlines on the specter of a U.S. recession spurred greater technical recovery and risk-taking in oil markets battered over the past three weeks by worries over the economy and a banking contagion.

West Texas Intermediate, or , crude settled up $1.82, or 2.6%, at $73.16 per barrel. That was on top of Friday’s gain of $2.78 for WTI. 

Despite the late rebound from last week, the U.S. crude benchmark finished the week ended May 5 down 7%, after prior losses of 1.2% and 5.8%, respectively, for the weeks ended April 28 and April 21.

London-traded crude settled Monday’s trade up $1.71, or 2.3%, at $77.01, after finishing Friday’s session up $2.80. For all of last week though, Brent was down about 5%, after prior weekly losses of 2.6% and 4.9%.

“It’s more technical recovery from oversold conditions, if you ask me, of what’s happening today,” said John Kilduff, partner at New York energy hedge fund Again Capital. “There’s less debate about a recession and fewer headlines as well as about fresh U.S. banking troubles and all these are translating to more risk-taking in oil.”

Kilduff said longs in oil were also looking forward to better supply-demand statistics from the weekly update on oil/fuel inventories due from the U.S. Energy Information Administration. “We’re nearing the kick-up in demand for gasoline and jet fuel that we typically see during the summer and the EIA data in the coming weeks will likely reflect that.”

Notwithstanding those bullish sentiments, investors in the space were also likely to be somewhat cautious over the next 48 hours ahead of the release of key U.S. inflation data that will likely influence the Federal Reserve’s interest rate decision in June.

The April reading for the Consumer Price Index, the single most closely-watched inflation indicator in the United States will tell if prices are receding any faster than forecast in the world’s largest economy.

Economists are expecting core CPI, which excludes volatile food and fuel prices, to increase by on a year-over-year basis, after a 5.6% increase a month earlier. The headline rate of inflation is expected to increase by annually.

That would indicate that while price pressures are moderating, they remain sticky.

The U.S. central bank delivered its tenth straight increase last week, as widely expected, but indicated that it may pause its aggressive tightening campaign at its next meeting in June.

A weaker-than-expected reading would bolster expectations for a Fed rate cut later this year but an above forecast print would support the case for the Fed to keep rates higher for longer.

Friday’s employment report for April showed that jobs growth and wage gains remain resilient, undercutting fears over the prospect of a recession. But they also added to rate hike fears.

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