Oil surged the most in nearly a month on Friday as investors digested Saudi Arabia’s latest plan to help stabilize prices following a selloff earlier in the week fueled by demand concerns.
West Texas Intermediate (WTI) advanced as much as 4.2 percent in New York.
Escalating tensions between China and the US along with a surprise gain in US stockpiles helped push prices to a seven-month low on Wednesday.
Yet, Saudi Arabia responded to the rout with a plan to limit output and exports next month.
Oil was “vulnerable for a correction,” said Gene McGillian, a senior analyst and broker at Tradition Energy in Connecticut. “Right now, the Saudis’ willingness to take steps has kind of stemmed the market slide. The question is how much can that rally work without other producers stepping up as well? Given this trading environment, these kind of big price swings are more expected than not.”
Plus, a large-volume bullish options trade was reported just after 9am in New York, for 25,500 contracts — equivalent to 25.5 million barrels of oil.
The buyer of the options would profit from a tighter supply and demand outlook for WTI at the end of the year, helping to push oil prices higher.
Saudi Arabia, the top producer in OPEC, plans to keep oil exports below 7 million barrels a day next month as it allocates less crude than customers demand, according to unnamed officials from the kingdom.
State-run Saudi Aramco would provide customers across all regions with 700,000 barrels a day less than they requested, the officials added.
WTI crude for September delivery on Friday rose US$1.96 to US$54.50 a barrel on the New York Mercantile Exchange. However, the contract is still down 2.1 percent for the week.
WTI is edging closer to its 50-day moving average, which it has held below since the beginning of the month.
Brent for October settlement on Friday rose US$1.15 to US$58.53 a barrel on the ICE Futures Europe Exchange, down 5.4 percent for the week. The global benchmark crude traded at a US$4.41 premium to WTI for the same month, the smallest discount in more than a year.
However, it is hard to ignore crude’s plummet earlier in the week due to growing fears that the trade spat between the world’s two largest economies will expand into a currency war.
The International Energy Agency (IEA) in a report Friday trimmed forecasts for oil-demand growth this year and next and called the demand outlook “fragile.”
The Russian Ministry of Energy said that the outlook for global oil demand that the IEA forecast confirms the need for OPEC+ cooperation.
“Demand concerns are overshadowing everything else,” Again Capital LLC partner John Kilduff said.
“The trade war is only worsening; it’s escalated significantly over the past few weeks,” he said.
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