Wednesday, September 19, 2018

© Bloomberg. An oil sample is poured into a glass beaker in the laboratory at the Novokuibyshevsk oil refinery plant, operated by Rosneft PJSC, in Novokuibyshevsk, Samara region, Russia.© Bloomberg. An oil sample is poured into a glass beaker in the laboratory at the Novokuibyshevsk oil refinery plant, operated by Rosneft PJSC, in Novokuibyshevsk, Samara region, Russia.

(Bloomberg) — Oil posted its biggest October gain in six years amid signs that a global glut is shrinking and a coalition of some of the world’s largest producers will continue coordinating supply limits.

Futures rose 0.4 percent in New York on Tuesday, capping a 5.2 percent jump this month. Saudi Arabia and Russia signaled support for extending production caps well into 2018. Meanwhile, U.S. crude stockpiles probably dropped for the fifth time in six weeks, according to a Bloomberg survey before a government tally scheduled for release on Wednesday.

The output restraints by OPEC and allies such as Russia are “tightening the market supply-demand fundamentals,” Gene McGillian, a market research manager at Tradition Energy in Stamford, Connecticut, said by telephone. “I don’t think we have any indications that the rebalance has completely been priced into the market.”

The global benchmark Brent crude this month topped $60 a barrel for the first time since July 2015 while the dominant U.S. grade, West Texas Intermediate, touched an eight-month high. The market was also buoyed by conflict between the Iraqi central government and semi-autonomous Kurds that threatened crude supplies from northern fields. The wild card remains North American shale’s potential to upend any coordinated moves to keep a lid on global production.

“As we approach the $55 a barrel level in WTI and the $60 we just crossed in Brent, are we going to start to see a response by drillers in the United States to capture some of these elevated prices, by bringing some of their drilled-but-uncompleted wells online and increasing their drilling activity?” McGillian said.

West Texas Intermediate crude for December delivery added 23 cents to settle at $54.38 a barrel on the New York Mercantile Exchange, the highest level since February. Total volume traded was about 26 percent below the 100-day average.

Brent for December settlement, which expires Tuesday, advanced 47 cents to end the session at $61.37 on the London-based ICE Futures Europe exchange, the highest level since July 2015. The more-active January contract rose 35 cents to settle at $60.94. The global benchmark crude traded at a premium of $6.99 to WTI.

The recent price surge for West Texas Intermediate may stall out as it inches closer to the $55 level, Jay Hatfield, a New York-based portfolio manager at the InfraCap MLP exchange-traded fund, said by telephone. But ultimately, a move into the $55 to $60 range is more probable than a major correction.

“Inventories are in good shape,” Hatfield said. “Demand is quite positive globally. We’ve been appropriately bullish.”

See chart: U.S. benchmark crude closing in on overbought territory

The Energy Information Administration is expected to report on Wednesday that U.S. crude inventories fell by 1.3 million barrels last week, according to the median estimate in a Bloomberg survey. The industry-funded American Petroleum Institute’s report is scheduled for release on Tuesday.

Oil-market news:

  • U.S. crude production averaged 9.2 million barrels a day during the month of August, compared with the 9.34-million average of weekly estimates, the EIA said.
  • Saudi Arabia will need oil to trade at $70 next year to break even, the Washington-based International Monetary Fund said on Tuesday in its Regional Economic Outlook for the Middle East and Central Asia.
  • Mexico spent about 24 billion pesos ($1.25 billion) to lock in prices for 2018 oil exports, more than 21 percent what it paid to hedge crude a year ago, according to Finance Ministry data.
  • Goldman Sachs Group Inc (NYSE:GS). isn’t throwing in the towel on its commodities business just yet. The bank has hired a slate of traders from rivals to turn around that business after it suffered the worst quarterly performance in the firm’s history as a public company.

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