Oil Gains on OPEC Cuts, Rising Demand
July 28 2017 - 12:00PM
Dow Jones News
By Timothy Puko
Oil prices are poised to finish higher every day this week and
have their best week since December as renewed optimism about
falling supply and rising demand refuel a rally.
U.S. crude is bumping up against $50 for the first time in
almost two months, retracing about half of the ground it lost
during an unexpected selloff that started in March. Traders and
analysts had widely predicted a rally toward $60 in part from
continued demand growth and a new deal from exporters to cut
output; these factors are pushing oil higher now, several months
later than many expected.
Light, sweet crude for September delivery recently gained 59
cents, or 1.2%, to $49.63 a barrel on the New York Mercantile
Exchange. Brent, the global benchmark, gained 86 cents, or 1.7%, to
$52.35 a barrel on ICE Futures Europe.
U.S. crude is up more than 8% for the week. That would be its
best weekly gain since it rose more than 12% in the week ending
Dec. 2, when the Organization of the Petroleum Exporting Countries
announced a deal that would eventually include Russia and other
major exporters and aim to cut output by around 1.8 million barrels
a day.
While that deal seemingly failed to ease a glut for most of the
year, there are signs that is changing. U.S. inventories have now
fallen in 14 of the last 16 weeks, sometimes dramatically. Lower
imports into the country have played a role, with Saudi Arabia
intentionally lowering its shipments to the U.S. Imports from Saudi
Arabia to the U.S. are now at a two-year low, down by about a third
since January, data-tracking firm ClipperData said Friday
morning.
"It's providing some confidence to the market they really mean
business here at trying to whittle down these inventories and
rebalance the market," said Matt Smith, director of commodity
research at ClipperData.
Demand also has been strong in the U.S. and abroad. U.S.
gasoline demand is rising and likely to break record highs soon,
ING Bank said Thursday. Gasoline and diesel futures have made the
biggest gains of the month as refineries run hard, analysts have
said. And U.S. exports showed a "meaningful increase" last week,
Piper Jaffray Cos.' Simmons & Co. International said
Thursday.
Mark Waggoner, president of brokerage Excel Futures, said he is
tempted to bet against oil now that it is approaching two-month
highs and long-term average prices. But demand has been strong,
making him hesitant. And he is expecting another, unusual surge of
gasoline demand from people in August going to see the first total
solar eclipse in the continental U.S. since 1979.
"You're going to have a lot of people driving," Mr. Waggoner
said Friday. "We're going to see bigger draws (from storage) like
we saw this last week, and that's going to hold the price up."
Analysts say the weekly report on U.S. oil-rig activity due
later Friday will be an important factor in determining how
producers might still be reacting to the unexpected fall in prices
throughout the spring. They have slowed a massive new deployment of
drilling rigs and a drop in the active rig count could offer a
short-term lift to prices, said a note from ING Bank.
"What we will be looking for is if the growth has plateaued,"
said Gao Jian, an energy analyst at Shandong-based SCI
International.
Gasoline futures recently gained 1.1%, to $1.6623 a gallon, and
diesel futures gained 1.3%, to $1.6233 a gallon.
Justin Yang and Jenny W. Hsu contributed to this article.
Write to Timothy Puko at tim.puko@wsj.com
(END) Dow Jones Newswires
July 28, 2017 11:45 ET (15:45 GMT)
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