Oil futures settle at their highest price of the year

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Oil futures settled Friday at their highest price year to date, with U.S. benchmark crude up more than 7% for the week, buoyed by a tightening supply picture.

Survey-based activity data from China also provided support ahead of a three-day weekend for U.S. investors.

Price action

  • West Texas Intermediate crude
    for October delivery

    climbed $1.92, or 2.3%, to settle at $85.55 a barrel on the New York Mercantile Exchange. Prices based on the front month gained 7.2% for the week, after climbing 2.2% in August, according to Dow Jones Market Data. They settled Friday at their highest since Nov. 16.

  • November Brent crude

    the global benchmark, added $1.72, or 2%, to $88.55 a barrel on ICE Futures Europe, after climbing 1.5% in August. It saw a 5.5% weekly climb and settled at the highest since Nov. 17.

  • October gasoline
    ended at $2.59 a gallon, up 1% for the session, but down 2% for the week, while October heating oil
    shed 0.3% to $3.11 a gallon, posting a 5% weekly loss.

  • Natural gas for October delivery
    fell 0.1% to settle at $2.77 per million British thermal units, up 4.1% on the week.

Market drivers

Brent and WTI eked out their third straight monthly gains in August, recovering from a pullback attributed to worries about soft economic data from China and the country’s property sector, alongside worries strong U.S. economic data out would prompt more interest rate rises by the Federal Reserve.

See: No August swoon for oil prices. Here’s why crude bounced back.

In China, the August Caixin manufacturing PMI came in above expectations on Friday, rising to 51, a level that indicates improving conditions, as the country also lowered down-payment requirements on homes. 

“While doom and gloom builds around China’s growth, PMIs for August provided some encouragement this week, even if they didn’t paint a picture of booming commodities demand,” said Kieran Tompkins, commodities economist at Capital Economics, in a note. “They suggest infrastructure spending has begun to support metals demand and that activity in the oil-intensive transport sector remains robust.”

On Friday, U.S. employment data showed a slowdown in job gains in July.

Meanwhile recent U.S. economic data have been “fairly Goldilocks, supporting the case for peak Fed policy rates already being ‘in’, which in turn is bolstering soft economic landing hopes,” said Tyler Richey, co-editor at Sevens Report Research.

“Ultimately that is a positive scenario for healthy and sustainable consumer demand for refined products that results in strong refinery demand for crude oil,” he told MarketWatch.

Traders also expect Saudi Arabia to extend its oil production cuts of 1 million barrels a day into October.

With Saudi Arabia cutting exports by 1 million barrels a day in August and likely to extend cuts into the fourth quarter, the “market is rightly pricing in an outlook of tighter inventories as we work toward 2024,” said Troy Vincent, senior market analyst at DTN.

“The question at this point is what will cause Saudi Arabia to stop continuing this cut?” he told MarketWatch. “One potential is that Russia doesn’t continue with their voluntary cuts and starts taking too much market share for the Saudi’s liking.”

Vincent said he expects “geopolitical pressure from the U.S. to have a growing influence on Saudi decision making as we work into Q4.”

U.S. markets will be closed Monday for the Labor Day holiday.

Read: Yes, the stock market is closed for Labor Day on Monday

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