Oil capped its strongest weekly increase in five months after entering a bull market, as investors weighed speculation that OPEC talks next month could lead to an output freeze and US inventories dropped.
Futures rose 0.6 percent in New York. While OPEC is unlikely to reach a deal to freeze production, its plans to hold informal talks in Algiers next month “were the spark” behind oil’s rally, according to Morgan Stanley.
US crude inventories dropped the most in five weeks through Aug. 12, while fuel stockpiles slid a third week, US Energy Information Administration data showed Wednesday.
Oil has climbed more than 20 percent since it dipped below US$40 a barrel earlier in the month, meeting the common definition of a bull market. Russian Energy Minister Alexander Novak said that the nation was open to discussing a freeze after his Saudi counterpart, Khalid Al-Falih, said that informal talks next month might lead to action to stabilize the market.
While money managers increased wagers on rising oil prices by the most since January during the week ended Aug. 9, bearish bets on crude remained at record-high levels, the Commodity Futures Trading Commission said.
“It’s kind of a perfect storm that has rallied this market, but on the other hand it has nothing to do with fundamentals,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc in New York. “It’s really a short-covering rally that’s been fueled by OPEC rumors.”
West Texas Intermediate for September delivery advanced US$0.30 to settle at US$48.52 a barrel on the New York Mercantile Exchange. The contract gained 9.1 percent this week, the most since March. Total volume traded was in line with the 100-day average.
Brent for October settlement slipped US$0.01 to close at US$50.88 a barrel on the London-based ICE Futures Europe exchange. The contract advanced US$1.04 to close at US$50.89 on Thursday, also entering a bull market after climbing more than 20 percent from its early-August low.
The global benchmark crude settled at a US$1.77 premium to WTI for October.
Meanwhile, the split among US Federal Reserve officials on whether to boost US borrowing costs is whipsawing gold again.
Futures gained on Thursday, a day after last month’s Fed minutes were released showing policymakers were divided on rates, only to swing to a loss on Friday. Comments from San Francisco Fed Bank President John Williams after gold futures closed on Thursday revived the bearish sentiment on the precious metal, paring this week’s gains.
The rally that sent gold to its best first half in almost four decades is slowing amid signs the US economy is resilient enough to face an increase in interest rates, despite risks to global growth. Fueling that speculation are voices from policymakers who favor the rate hike, including Williams and New York Fed President William Dudley. Their comments boosted the US dollar, curbing the appeal of commodities for holders of other currencies.
“Today, gold suffers from Fed indecision, pulled down by higher rate outlook fostered by many Fed speakers” George Gero, a managing director for RBC Wealth Management in New York, said in an e-mail. “We need higher open interest, higher closes, higher moving averages to attract asset allocators.”
Gold futures for December delivery slid 0.8 percent to settle at US$1,346.20 an ounce at 1:39pm on the COMEX in New York, paring this week’s gain to 0.2 percent.
Williams on Thursday said it makes sense to get back to a pace of gradual increases, preferably sooner rather than later. On Tuesday, Dudley said the Fed could potentially raise interest rates as soon as next month, while Atlanta Fed President Dennis Lockhart said he is confident that US economic growth is accelerating, setting the stage for at least one increase in interest rates this year.
“The market remains very twitchy around anything that relates to the Fed,” said Neil Meader, an analyst at Metals Focus Ltd in London. “This period of consolidation we’ve seen in prices is a reflection of the lack of clarity on when the next increase will occur.”
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