Oil rose to a three-month high, closing above a key technical barrier, as signs of a tighter crude market outweighed the prospect of another Federal Reserve hike.
West Texas Intermediate settled above $78 a barrel as OPEC+ cuts begin to materialize, reducing global supplies. Adding to the intraday rally was an outage at Exxon’s Baton Rouge refinery, where a catalytic cracker that makes gasoline may be down for several weeks. The disruption during the high-demand summer driving season also pushed the 3-2-1 crack, a measure of the profitability of turning crude into fuel, to the highest since March.
Benchmark US crude closed above its 200-day moving average, which has provided strong resistance since August. Holding oil above this threshold could spur additional buying. Risk sentiment in equity markets, which are trading near highs this year, is also bolstering crude oil.
Crude is still down slightly for the year, despite production cuts by the Organization of the Petroleum Exporting Countries and its allies, including Russia. On the demand side, China’s stalled recovery has provided a persistent headwind for industrial commodities, but the nation has indicated it will add stimulus to boost its economy.
“The comments from China are disappointing for some markets, but the fact that we’re seeing stimulus, if they do anything to support the economy, is positive for crude because I don’t think crude has been priced into stimulus,” said Rebecca Babin, senior energy trader at CIBC Private Wealth.
Among other metrics, there are signs of strength in the underlying structure of the market. WTI’s quick spread (the spread between its two closest contracts) was about 36 cents a barrel in retreat, a bullish pattern that is nearly the widest since mid-November.
Prices:
- September WTI rose $1.67 to settle at $78.74 a barrel in New York.
- Brent for September settlement advanced $1.67 to settle at $82.74 a barrel.
– With the assistance of Chunzi Xu.
