Crude Oil Edges Higher; China Stimulus Boosts Sentiment

Oil prices edged higher Thursday, on course for strong weekly gains as China attempted to boost demand while global supply remained very tight.

By 08:40 ET (12:40 GMT), U.S. crude futures traded 0.1% higher at $94.94 a barrel, while the Brent contract rose 0.4% to $101.67. Both contracts are on course for weekly gains of around 5%.

U.S. Gasoline RBOB Futures were up 0.2% at $2.8053 a gallon.

The Chinese government announced plans earlier Thursday to top up its economic stimulus to 1 trillion yuan (around $150 billion).

This attempt, to try and restore an economy ravaged by drought and COVID-19 restrictions, has been well-received by the oil market, given China is the largest oil importer in the world.

This news has added positive momentum to a market that had already been boosted by the release of data by the Energy Information Administration showing that U.S. crude inventories fell by much more than expected last week.

The volume of crude and its products exported from the U.S. last week was the highest in a series going back to February 1991.

"EIA numbers released yesterday were fairly constructive," said analysts at ING, in a note. "U.S. commercial crude oil inventories fell by 3.28MMbbls over the last week. However, when taking into account releases from the strategic petroleum reserve, total U.S. crude oil inventories declined by a significant 11.37MMbbls."

Additionally, earlier the week, Saudi Energy Minister Prince Abdulaziz bin Salman flagged the possibility that the Organization of Petroleum Exporting Countries and allies, a group known as OPEC+, could cut production, boosting the market.

He added that futures prices, which have fallen over 25% from their peaks earlier in the summer, are failing to reflect the tightness of the physical market.

Elsewhere, investors are also watching for progress on the revival of a nuclear deal with Iran, which could lead to the resumption of crude exports into the global market from the OPEC producer.

"The U.S. finally replied to the EU’s proposal for reviving the deal," ING added. "And while clearly, negotiations appear to be moving in the right direction, the US has said that "we’re not there yet" and that there are still "gaps" that remain."

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Russia suspends oil exports via southern leg of Druzhba pipeline – Reuters

Citing two sources familiar with the operation, Reuters reported on Tuesday that Russia suspended oil exports via the southern leg of the Druzhba pipeline from early August due to issues relating to transit fees.

"According to the sources, the payment from Russia's pipeline monopoly Transneft to Ukraine's pipeline operator Ukrtransnafta did not go through," Reuters explained.

Market reaction

Crude oil prices rose sharply with the initial reaction to this development. As of writing, the barrel of West Texas Intermediate was trading at $91.85, where it was up 1.55% on a daily basis.

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Oil up over $2/bbl as hopes fade for OPEC+ supply boost

Oil prices settled up more than $2 a barrel on Friday as attention turned to next week's OPEC+ meeting and dimming expectations that the producer group will imminently boost supply.

Brent crude futures contract for September, which expire on Friday, jumped more than $3 a barrel during the session and then pared gains to settle at $110.01 a barrel, up $2.87, or 2.7%. The more active October contract was up $2.14, or 2.1%, at $103.97.

U.S. West Texas Intermediate (WTI) crude futures settled at $98.62 a barrel, rising $2.20, or 2.3%, after jumping more than $5 a barrel.

Both contracts logged their second monthly losses, with Brent down about 4% for July and WTI nearly 7% lower.

Oil pared some gains after the release of data from oil services firm Baker Hughes, which showed that U.S. drillers added crude rigs for a record 23 months in a row, indicating more supply ahead. [RIG/U]

In July, the oil rig count rose 11, increasing for a record 23rd month in a row, while the gas count was unchanged after rising for 10 straight months, the Baker Hughes data showed.

Stronger stock markets supported oil, as did a weaker dollar, which makes oil cheaper for buyers with other currencies.

"These days, there has been a lot of macro influences on the oil market with the stock market making a nice rebound and a similar fall in the dollar feeding into (today's prices)," said John Kilduff, partner at Again Capital LLC.

Global equities, which often move in tandem with oil prices, were up on the hope that disappointing growth figures would encourage the U.S. Federal Reserve to ease up on monetary tightening. [MKTS/GLOB]

A Reuters survey forecast Brent would average $105.75 a barrel this year with U.S. crude averaging $101.28. [OILPOLL]

Front-month Brent futures are selling at a rising premium to later-loading months, a market structure known as backwardation, indicating tight current supply.

"The oil market in Europe is considerably tighter than in the U.S., which is also reflected in the sharply falling Brent forward curve," said Commerzbank (ETR:CBKG) analyst Carsten Fritsch.

Investors will next watch the Aug. 3 meeting of the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, together known as OPEC+.

OPEC+ sources said the group will consider keeping oil output unchanged for September with two saying a modest increase would be discussed.

A decision not to raise output would disappoint the United States after President Joe Biden visited Saudi Arabia this month hoping for a deal to open the taps.

Analysts said it would be difficult for OPEC+ to boost supply, given that many producers are already struggling to meet production quotas.

OPEC+ compliance with oil output cut pledges reached 320% in June, Russian Interfax news agency reported, citing a source familiar with the data. It said the group's combined oil underproduction was 2.84 million barrels per day last month.

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 Crude Oil Futures: Further downside looks unlikely

CME Group’s flash data for crude oil futures markets showed investors trimmed their open interest positions by around 3.4K contracts at the beginning of the week, adding to the previous daily drop. Volume, instead, increased for the fourth session in a row, now by around 160.2K contracts.

WTI: Next support comes at $100.30

Prices of the barrel of WTI dropped sharply on Monday against the backdrop of shrinking open interest. That said, extra losses appear out of favour in the very near term, while prices of the commodity remain well supported by the so far May low near the $100.00 mark per barrel.

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Crude Oil Futures: Rising bets for further upside

Open interest in crude oil futures markets went up for the third consecutive session on Thursday, now by nearly 19K contracts according to advance prints from CME Group. Volume followed suit and rose by 157.3K contracts, fading the previous day’s retracement.

WTI now targets April tops around $109.00

Prices of the WTI extended the weekly recovery on Thursday. The move was accompanied by rising open interest and volume, paving the way for the continuation of this bounce to, initially, the April high just above the $109.00 mark per barrel in the very near term.

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