Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
MarketWatch via Vestnik Kavkaza]
Oil rallied Friday, with U.S. and global benchmark prices tallying their highest settlements in more than two years as a drop in the U.S. oil-rig count hinted at an output slowdown. As Market Watch writes in an article “Oil marks another 2-year high, up a fourth-straight week“, the “final straw” that prompted strong gains near the session’s end was the big drop in U.S. rig counts.
According to Phil Flynn, senior market analyst at Price Futures Group, that combined with recent data showing near record crude demand and falling U.S. oil inventories to fuel a price rally. A report from Bloomberg that Nigerian militants will end a cease-fire, which could lead to a resumption of attacks on oil installations, “added more upside risk into the weekend,” he said.
December West Texas Intermediate crude oil rose $1.10, or 2%, to settle at $55.64 a barrel, marking its highest settlement price since July 2, 2015, according to FactSet data. It ended around 3.2% higher for the week, up a fourth-straight week. Brent for January LCOF8, gained $1.45, or 2.4%, to finish at $62.07 a barrel, with the contract also ending a more than two-year high and posting a 3.2% rise for the week.
“OPEC rhetoric gets a lot of the attention, [but] increasing global demand expectations and the pause in U.S. output growth beginning back in August are two other key pillars to the bullish fundamental argument for oil right now,” Tyler Richey, co-editor of the Sevens Report, told MarketWatch. The Organization of the Petroleum Exporting Countries deal, however, is “a very important development as the market is finally starting to have faith in the efficacy of the cartel again,” he said.
Meanwhile, Russian energy minister Alexander Novak said on Thursday the output deal between OPEC and a group of non-cartel countries led by Russia could be extended beyond March 2018, if needed. Traders widely expect OPEC to prolong the deal when the organization meets in Vienna on Nov. 30.
Oil prices are also getting a boost from solid global economic growth that is helping lift demand and reduce the oversupply that has weighed on oil prices in recent years. Data Friday revealed that the U.S. ISM services index in October climbed to a 12-year high. “We’ve seen global growth clearly much stronger than we would have expected 12 months ago,” said Jason Thomas, director of research at the Carlyle Group. “It’s not just faster growth, it’s faster growth in areas that happen to be oil consuming,” like trade and industrial activity, he said.
From the same time a year ago, WTI oil prices have climbed 25%, while Brent has rallied 34%. “Currently there is no sign of anything that might spoil the mood of optimists: U.S. oil stocks are falling and representatives of those countries that have committed themselves to cutting production do not tire of confirming the market’s expectation that the agreement will be extended,” analysts at Commerzbank said in a note on Friday.
The higher prices for oil have sparked worries that the U.S. which isn’t part of the output-cut deal, will find incentive to boost output, but there are indications that production growth has slowed. Baker Hughes BHGE, +0.26% said Friday that number of active U.S. rigs drilling for oil fell by 8 to 729 this week. That was the fourth weekly decline in five.
Among energy products Friday, December gasoline tacked on 1.3% to $1.793 a gallon, with the contract up 4.4% from a week ago. December heating oil ended at $1.887 a gallon, up 1.8% for the session and 1.1% higher for the week. Natural gas climbed 1.7% to $2.984 per million British thermal units, trading around 0.7% higher for the week.A Subsidiary of Price Holdings, Inc. – a Diversified Financial Services Firm. Member NIBA, NFA Past results are not necessarily indicative of future results. Investing in futures can involve substantial risk of loss & is not suitable for everyone. Trading foreign exchange also involves a high degree of risk. The leverage created by trading on margin can work against you as well as for you, and losses can exceed your entire investment. Before opening an account and trading, you should seek advice from your advisors as appropriate to ensure that you understand the risks and can withstand the losses. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or futures. The Price Futures Group, its officers, directors, employees, and brokers may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction. Reproduction and/or distribution of any portion of this report are strictly prohibited without the written permission of the author. Trading in futures contracts, options on futures contracts, and forward contracts is not suitable for all investors and involves substantial risks. ©2018