Oil is set for its third weekly advance after OPEC and its allies surprised the market with a production cut, while shrinking US inventories added to the bullishness.
(Bloomberg) — Oil is set for its third weekly advance after OPEC and its allies surprised the market with a production cut, while shrinking US inventories added to the bullishness.
West Texas Intermediate traded above $80 a barrel, with futures this week holding Monday’s 6% gain. That jump was the largest in a year after an unexpected move by the Organization of Petroleum Exporting Countries and its allies to shave more than a million barrels a day of output from next month. Saudi Arabia has since hiked prices of all its oil sales to customers in Asia.
Crude has risen about 25% since mid-March, when it collapsed to a 15-month low on the back of a banking crisis that prompted a flight from riskier assets. The move by OPEC+ took out some speculative short sellers, pushing prices higher just as expectations of a recovery in Chinese demand, shrinking US inventories and a weakening dollar also lifted the allure of commodities.
US nationwide commercial crude stockpiles fell 3.7 million barrels last week, Energy Information Administration data showed. The hoard of gasoline and distillates — a category which includes diesel — both shrank, while stocks at the oil storage hub at Cushing, Oklahoma, similarly contracted.
“OPEC’s unexpected production cut earlier this week is a strong signal that they are motivated to keep prices above the $80 mark,” said James Whistler, managing director of brokerage Vanir Global Markets Pte. “We don’t see any real threat that the rest of the world can do much about this with little ability to increase production elsewhere.”
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