Oil prices rose above $85 as OPEC+ efforts to cut supplies gripped the physical market and China showed renewed determination to shore up its economy, a key driver of global consumption raw
West Texas Intermediate rose for a seventh straight day, extending its longest run since January and closing at the highest settlement price since November. US futures advanced 7.2% this week, notching the biggest weekly gain since March.
Saudi Arabia has led a charge since April to cut output from OPEC and its allies in a bid to revive prices. While the start of the campaign gave crude an initial jolt, that gain faded as supplies from Russia remained resilient and concerns about demand from China persisted. But crude has rallied since late June as flows from Saudi Arabia ease to multi-year lows, Russia deepens its commitment to price support efforts and China steps up measures to strengthen its economy.
“$85 WTI is a huge psychological level,” said Rebecca Babin, senior energy trader at CIBC Private Wealth. “To advance and sustain, we will need confirmation of the extensions of cuts between Saudi Arabia and Russia and confidence that the stimulus from China has started to take hold and improve sentiment there. I think we will break above $85 and we’ll hold on, but first we can try and fail a few times.”
On Friday, key US jobs data gave prices another blow of support, with the higher-than-expected unemployment rate and slowing wage growth adding to bets that the Reserve Fed has finished raising interest rates.
Time spreads, both short-term and longer, are also signs of strength. The fast spread for US crude has widened to its strongest level since November as inventories at the key storage hub in Cushing, Oklahoma, continue to shrink. The closely watched spread between the two closest December contracts for WTI soared to a one-year high.
Bets on $100 oil are also rising as supplies shrink. Open interest in $100 call options for the next 12 months has risen from about 80,000 contracts in mid-July to 120,000 today.
Prices:
- WTI for October delivery rose 2.3% to settle at $85.55 in New York.
- Brent for November settlement gained 2% to settle at $88.55 a barrel.
