Oil prices surged above $85 as a monthslong effort by OPEC+ to reduce supplies gripped the physical market and China showed a new resolve to bolster its economy, a key engine of global crude consumption.
(Bloomberg) — Oil prices surged above $85 as a monthslong effort by OPEC+ to reduce supplies gripped the physical market and China showed a new resolve to bolster its economy, a key engine of global crude consumption.
West Texas Intermediate climbed for the seventh straight day, extending the longest such run since January and closing at the highest settlement price since November. US futures have advanced 7.2% this week, notching the biggest weekly gain since March.
Saudi Arabia has led a charge since April to reduce output from OPEC and its allies in a bid to revive flagging prices. While the campaign’s start gave crude an initial jolt, that gain faded as supplies out of Russia remained resilient and concerns about China’s demand lingered. But crude has rallied since late June as Saudi Arabia’s flows dwindle to multiyear lows, Russia deepens its commitment to the price-support effort and China ramps up measures to strengthen its economy.
“$85 WTI is a huge psychological level,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth. “To break through and hold we will need confirmation of Saudi-Russia cut extensions and confidence that China stimulus has started to take hold and improve sentiment there. I think we will break above $85 and hold, but we may test and fail a few times first.”
Key US jobs data on Friday gave prices a further hit of support, with the unemployment rate coming in higher than expected and wage growth slowing, adding to bets that the Federal Reserve is done raising interest rates.
Timespreads in both the near term and further out are flashing signs of strength, too. US crude’s prompt spread has surged to the strongest level since November as inventories in the key storage hub of Cushing, Oklahoma, continue to be drawn down. The closely watched spread between the nearest two December contracts for WTI skyrocketed to the widest in a year.
Bets on $100 oil are also rising as supplies tighten. Open interest on $100 call options over the next 12 months has risen from about 80,000 contracts in the middle of July to 120,000 today.
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