Investing.com - It’s Friday — time for oil traders to react a little excessively to what’s been jerking the market, and for now, it’s still the Saudi-led production cuts, resulting in another weekly gain for crude.
Both New York-traded WTI, or West Texas Intermediate, crude and its London-based peer, Brent, reversed Thursday’s drop of close to 1% as the weekend approached.
WTI settled at $87.51 per barrel, up 64 cents, or 0.7%, on the day. The U.S. crude benchmark hit a 10-month peak of $88.09 on Wednesday. With a net gain in three days versus two, WTI rose 2.2% on the week, extending the prior week’s 7.2% rally.
Brent settled at $90.65, up 73 cents, or 0.8%, on the day, recapturing the $90 handle which it momentarily lost for the first time on Thursday after gaining it on Tuesday. For the week, the global oil benchmark rose 2.4%, extending the prior week’s 4.8% gain.
Brent's rise to above $90 came with less than three weeks left for summer, the season Americans like driving the most. With the fall season of lower oil usage set to begin on Sept 23, crude prices would typically retreat a little, sometimes meaningfully, in the world’s largest consuming country.
But that may not happen this time, not with the Saudi obsession of ultimately getting oil to $100 a barrel or beyond. The Arabs, who control much of the world’s oil exports, have been fixated on triple digit pricing since losing that advantage in August 2022, when Brent crude hovered above $105.
Key to this is the 1.0-million-barrels-per day in additional cuts, on top of other existing production rationing, that the Saudis have been carrying out since July. By extending this till the year-end — and widening it with the help of Moscow which will cut 300,000 barrels per day of Russian production — the kingdom is hoping to create a different sort of market phenomenon for pricing.
Fear of less oil for the market to play with was playing on traders’ minds, particularly with the approach of the weekend which tends to put the market on a hedging overdrive, said analysts.
“Oil prices have consolidated a little as we’ve moved through the week but the trend remains very positive for crude, backed once again by the decision from Saudi Arabia and Russia to extend supply restrictions to the end of the year,” observed Craig Erlam, analyst at online trading platform OANDA.
“A lot more oil [is] off the market at a time when it’s clearly quite tight, albeit with a global economic outlook that is highly uncertain. Demand may still wane but traders appear to be working on the assumption of soft landings and mild recessions at worst. China is another unknown with slow and steady growth, by its standards, looking like the path ahead.”
Data on Thursday showed overall Chinese exports and imports fell in August, as sagging overseas demand and weak consumer spending squeezed businesses.
However, even in times of lackluster economic activity, China tends to bolster its storage capacity, particularly with the availability of cheap Russian crude. Last month, Chinese crude imports rose nearly 31%.
Meanwhile, questions remain about whether central banks in the United States and Europe will continue their aggressive interest rate hike campaigns to tame persistent inflation.
"Riyadh is acutely aware of the tightrope it walks between tightening the market and upsetting any up-and-until-now progress achieved by central banks in taming price-rise driven inflation," John Evans of oil broker PVM said in comments carried by Reuters.
(Ambar Warrick contributed to this item)