Oil prices rise as bulls attempt to salvage monthly gain

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Oil futures climb on Thursday, with bulls looking to salvage a monthly gain for crude as signs of tight supplies provided support.

Price action

  • West Texas Intermediate crude for October delivery


    was up $1.31, or 1.6%, at $82.94 a barrel on the New York Mercantile Exchange. Front-month WTI futures were down 0.2% for August through Wednesday’s close after back-to-back monthly gains.

  • October Brent crude
    the global benchmark, was up 90 cents, or 1.1%, at $86.76 a barrel on ICE Futures Europe on the contract’s expiration day. The more actively traded November contract

    gained 81 cents, or 1%, to $86.05 a barrel. Front-month Brent was holding on to a 0.3% August gain through Wednesday, which would be its third straight monthly advance.

  • September gasoline
    was little changed at $2.8096 a gallon and September heating oil
    lost 0.5% to $3.0805 a gallon, ahead of the expiration of the contracts at the end of the trading session.

  • October natural gas
    traded at $2.822 per million British thermal units, up 0.9% for the session. As of Wednesday, it traded more than 6% higher for the month.

Market drivers

A summer rally for oil, attributed in part to production cuts that saw Saudi Arabia voluntarily reduce production by 1 million barrels a day beginning in July, stalled in August on worries over the global economic outlook. Soft Chinese economic data and concerns about the country’s ailing property sector raised doubts about demand from the world’s second-largest crude consumer.

However, Saudi Arabia is widely expected to extend its million barrel-per-day cuts through October, Manish Raj, managing director at Velandera Energy Partners, told MarketWatch. “The money question is, will the Saudis deepen the cuts?  Birds of feather flock together, so it is possible [the] Saudis will be joined by Kuwait and the UAE, who have so far been sitting on the fence.”

Strong U.S. economic data, meanwhile, has been of no help for oil bulls, as they raise expectations for further interest rate rises by the Federal Reserve and that lifted the U.S. dollar and Treasury yields, which can both weigh on commodity prices, said Raj. Weaker U.S. labor market data this week though, ahead of Friday’s August employment report, saw yields and the dollar pull back.

On Wednesday, the Energy Information Administration reported that U.S. commercial crude inventories fell by 10.6 million barrels for the week ending Aug. 25.

U.S. commercial crude inventories have fallen by almost 34 million barrels over the past five weeks, Alex Kuptsikevich, senior market analyst at FxPro, said in a note.

Inventories are now only 1.1% higher than the same week the previous year, despite the release of over 100 million barrels, or 22%, of the U.S. Strategic Petroleum Reserve during this period, he wrote.

“Oil has risen in five of the last six trading sessions, gaining almost 4%. With a lower volatility, crude may be preparing for a big move higher,” Kuptsikevich said.

A reversal to the upside after crude last week fell below support at $78 a barrel also coincided with the formation of a so-called golden cross, which occurs when the 50-day moving average crosses above the 200-day moving average from below, also helping to buoy market sentiment, he said.

Meanwhile, the EIA on Thursday said U.S. natural-gas supplies in storage rose by 32 billion cubic feet for the week ended Aug. 25. On average, analysts surveyed by S&P Global Commodity Insights forecast an increase of 30 billion cubic feet.

Prices for natural gas traded lower, then moved up in the wake of the supply data.

The gas trade is all about the upcoming winter weather, said Velandera Energy’s Raj. “With both the Farmers’ Almanac and the Old Farmers’ Almanac predicting below normal winter temperatures, natural gas has inched higher.”

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