OPEC was right, as weak demand wipes out oil's gains from price cut

Saudi Arabia and its partners opened the month by shocking global oil markets with their announced production cuts, but with Brent crude sinking below $78/bbl this week, the group's contention that the cuts were needed to prevent an oversupply looks prescient.

"Those who were predicting over $100 oil did not understand how weak markets were looking," Citi's head of commodities research Ed Morse said.

Crude swung sharply in April, surging to a 15-month high after the cuts were announced, but have since given up all their gains as oil markets have steadily deteriorated, weighed by the weaker than expected post-pandemic rebound in China and lingering fears of a recession in the U.S.

The question now may be whether OPEC+ will argue that further cuts are needed at its June meeting to review production.

Crude oil futures turned sharply higher Friday and finished up modestly for the month of April, snapping a five-month losing streak.

Front-month June Nymex crude (CL1:COM) fell 1.4% for the week but rose 1.4% for April to $76.78/bbl, and June Brent crude (CO1:COM) tumbled 2.6% this week while adding 0.3% for the month to $79.54/bbl.

ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (DBO), (USL), (DRIP), (GUSH), (USOI), (NRGU)

Helping lift crude prices Friday was a monthly report from the Energy Information Administration showing U.S. petroleum demand reached its highest level since November 2022, while production fell to the lowest since December 2022.

Energy (NYSEARCA:XLE) topped the S&P sector leaderboard Friday after oil heavyweights Exxon Mobil and Chevron reported strong quarterly earnings.

Exxon (NYSE:XOM) pushed to a new all-time intraday high of $119.92 after scoring a record Q1 profit of $11.4B, while Chevron (CVX) rose after tallying $6.6B in Q1 earnings.

Exxon's (XOM) cash balance grew to $32.7B in the quarter and the company generated $11.4B worth of free cash flow, the highest among major oil firms, and it is expected to top the list again this year with nearly $40B, according to Wall Street estimates polled by Visible Alpha.

"With money burning a hole in its pocket, Exxon is running out of reasons not to pursue an acquisition," says Jinjoo Lee of The Wall Street Journal's Heard On The Street column.

The strong leadership at the top helped lift the Energy Select Sector SPDR ETF (XLE) to a slight gain for the week, +0.2%.

Top 5 gainers in energy and natural resources during the past 5 days: (ATLX) +26.9%, (CHNR) +26.1%, (LITM) +23.6%, (FLUX) +15%, (EU) +14.4%.

Top 5 decliners in energy and natural resources during the past 5 days: (OTC:NESR) -28.9%, (SJT) -18.9%, (HPK) -12.5%, (EC) -12.4%, (MTR) -12.1%.

Source: Barchart.com