The two major benchmarks of the black liquid are bullish towards the start of the London session as the upcoming US peak driving season could see higher fuel demand, thereby causing a supply shock and putting pressure to produce more oil.
The global benchmark, the Brent oil futures is up 0.63%, currently trading $110.68 a barrel. The United States benchmark, the West Texas Intermediate (WTI) futures is up 0.53%, currently trading $110.84, flipping the Brent crude oil futures in terms of pricing as U.S. oil is now more expensive than the global benchmark.
Also weighing in on oil prices is the tight supply and a slightly weaker U.S. dollar supporting the market, as Shanghai prepares to reopen after a two-month lockdown, which fueled worries about a sharp slowdown in growth.
What you should know
The U.S. peak driving season usually begins on Memorial Day weekend on May 30 and ends on Labor Day in September.
Analysts have explained that despite fears about soaring fuel prices potentially denting demand, mobility data from TomTom and Google had climbed in recent weeks, showing more people were on the roads in places like the United States.
A weakening dollar also gave the black liquid a boost because that makes crude cheaper for buyers holding other currencies. The dollar index, the measure of the strength of the U.S. dollar, fell from its 20-year high to currently trade at 102.60 basis points.
Market gains were capped by concerns over ongoing COVID-19 lockdowns in China. The world's largest oil importer is loosening its lockdowns in Shanghai and the People's Bank of China cut its five-year loan prime rate during the previous week, signaling that the authorities are supporting a recovery.
Lockdowns in China, the world's top oil importer, have hammered industrial output and construction, prompting moves to prop up the economy, including a bigger-than-expected mortgage rate cut last Friday.
On a final note, the European Union was unable to achieve an agreement on banning Russian oil for its invasion of Ukraine on Feb. 24, which also limited oil's gains.
SPI Asset Management managing partner Stephen Innes told Reuters, ..Oil prices are supported as gasoline markets remain tight amid solid demand heading into the peak U.S. driving season. Refineries are typically in ramp-up mode to feed U.S. drivers. unquenching thirst at the pump.
ANZ analysts said in a note that, ..High-frequency data suggests demand continues to grow. COVID-19 lockdowns are a transitory drag on demand in China, although elsewhere demand is holding up well. We expect industrial activity to pick up, as stimulus measures kick in.
