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Oil futures settled higher Friday to tally a gain for the week, as traders assessed China’s decision to release crude from its strategic reserve and continued to monitor the slow return of production in the Gulf of Mexico following Hurricane Ida.
U.S. benchmark prices have been “trending sideways” between about $67 and $71 for about a week now and Friday’s action “appears to be a normal bounce within that range,” Colin Cieszynski, chief market strategist at SIA Wealth Management, told MarketWatch. So far, advances have “stalled short” of $70, which suggests that Friday’s rally may be “related to more to short covering and position squaring ahead of the weekend than renewed bullish interest.”
Still, there has been a “general improvement in market sentiment” following Thursday night’s call between U.S. President Joe Biden and Chinese President Xi Jinping, said Cieszynski. The presidents spoke by phone in effort to ease hostilities between the two nations, according to The Wall Street Journal.
The energy market is “trying to figure out if the Biden/Xi call will lead to a more positive environment for risk appetite,” said Edward Moya, senior market analyst at Oanda, in a market update.
West Texas Intermediate crude for October delivery
CL00,
CLV21,
rose $1.58, or 2.3%, to settle at $69.72 a barrel on the New York Mercantile Exchange, lifting the U.S. benchmark up by 0.6% for the week, according to Dow Jones Market Data. November Brent crude
BRN00,
BRNX21,
the global benchmark, climbed $1.47, or 2.1%, at $72.92 a barrel on ICE Futures Europe, up 0.4% for the week.
On Thursday, crude tumbled in a choppy trading session, with weakness coming after reports said China plans a release from its crude-oil reserve, in a move to ease commodity price inflation. But analysts have played down the implications of the move, arguing that the move likely refers to releases that already took place this summer.
The move “is a red herring and is likely referring to a release made earlier this summer,” said Michael Tran, commodity analyst at RBC Capital Markets, in a note. The timing of the news is “bizarre and can only be interpreted as the Chinese government’s way of trying to talk down the market.”
Analysts at Goldman Sachs, in a note late Thursday, said the move was a reflection of a “fast-tightening oil market” and that the added supply had already been factored into the market.
The release “is consistent with satellite data inventory tracking, and hence already in our (and consensus) balances,” they wrote.
Also, “this is conceptually not new crude to the market as the government-designated crude reserves are effectively indistinguishable from Chinese SOE (state-owned enterprise) refiners, as can be seen with the high co-movement of approximated government and commercial satellite inventories. This stands in contrast to U.S. SPR (Strategic Petroleum Reserve) crude inventories which are significant and assumed to be off the market,” they said.
Meanwhile, crude output in the Gulf of Mexico remains curtailed following Hurricane Ida, which made landfall on the Louisiana Gulf Coast on Aug. 29. The Bureau of Safety and Economic Enforcement late Friday estimated that 66.36% of oil production and 75.55% of natural-gas production in the Gulf remains shut in.
“Total crude oil production losses as a result of Hurricane Ida now amount to a little over 22 million barrels, and with output still struggling to recover, this will grow,” wrote Warren Patterson, head of commodities strategy at ING, in a Friday morning note.
News reports Thursday said the Royal Dutch Shell
RDS.A,
RDS.B,
canceled export cargoes as a result of hurricane-related damage to offshore production facilities.
Baker Hughes
BKR,
on Friday, however, reported that the number of active U.S. rigs drilling for oil climbed by seven this week to 401 rigs. That followed a drop of 16 oil rigs last week, the largest weekly decline so far this year.
Looking ahead, the Organization of the Petroleum Exporting Countries is expected to release its monthly oil report Monday. The group of major producers will likely downwardly revise its 2022 oil demand growth forecast as the spread of the coronavirus delta variant threatens the pace of recovery in fuel use, Reuters reported Friday, citing two sources from OPEC+, which is comprised of OPEC members and their allies.
Separately, the International Energy Agency will issue its monthly oil report on Tuesday.
Back on Nymex Friday, October gasoline
RBV21,
tacked on 2.6% to $2.15 a gallon, ending flat for the week, while October heating oil added 1.5% to nearly $2.15 a gallon, for a weekly loss of 0.6%.
October natural gas
NGV21,
lost nearly 1.9% to $4.938 per million British thermal units. On Thursday, it settled at $5.03, the highest front-month contract finish since February 2014, according to Dow Jones Market Data. For the week, prices settled up by 4.8%, supported by tight U.S. supplies and a slow output recovery in the Gulf.
