Oil Gains on OPEC Cuts, Rising Demand

By Justin Yang and Jenny W. Hsu Features Dow Jones Newswires

Oil prices ticked higher Friday, hitting a two-month high ahead of a key reading on U.S. production activity.

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Brent crude, the global oil benchmark, rose 0.06% to $51.55 a barrel on London's ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading up 0.08% at $49.08 a barrel.

Analysts say the weekly report on U.S. oil-rig activity due later Friday will be an important factor in determining how producers there are coping with prolonged soft prices. A further drop in the active oil-drilling rig count could offer a short-term lift to prices, said a note from ING Bank.

"What we will be looking for is if the growth has plateaued," said Gao Jian, an energy analyst at Shandong-based SCI International.

Crude is up more than 6% week-to-date on a raft of positive U.S. data points and a renewed commitment from the Organization of the Petroleum Exporting Countries to rein in production and exports. But doubts on whether oil can sustain its recent price increases persist.

Saudi Arabia could be challenged to maintain its promised export cuts after the region's own high-demand summer season ends and there is more crude available to export in the autumn, said Commerzbank in a note.

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"We consider the current prices a bit high today, ahead of the fundamentals. We expect prices to lower over the next weeks," said Eugen Weinberg, head of commodity research at Commerzbank.

Nymex reformulated gasoline blendstock--the benchmark gasoline contract--rose 0.01% to $1.62 a gallon. ICE gas oil changed hands at $477.00 a metric ton, up/down $1.75 from the previous settlement.

Write to Jenny W. Hsu at jenny.hsu@wsj.com

Oil prices are poised to finish higher every day this week and have their best week since December as renewed optimism about falling supply and rising demand refuel a rally.

U.S. crude is bumping up against $50 for the first time in almost two months, retracing about half of the ground it lost during an unexpected selloff that started in March. Traders and analysts had widely predicted a rally toward $60 in part from continued demand growth and a new deal from exporters to cut output; these factors are pushing oil higher now, several months later than many expected.

Light, sweet crude for September delivery recently gained 59 cents, or 1.2%, to $49.63 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, gained 86 cents, or 1.7%, to $52.35 a barrel on ICE Futures Europe.

U.S. crude is up more than 8% for the week. That would be its best weekly gain since it rose more than 12% in the week ending Dec. 2, when the Organization of the Petroleum Exporting Countries announced a deal that would eventually include Russia and other major exporters and aim to cut output by around 1.8 million barrels a day.

While that deal seemingly failed to ease a glut for most of the year, there are signs that is changing. U.S. inventories have now fallen in 14 of the last 16 weeks, sometimes dramatically. Lower imports into the country have played a role, with Saudi Arabia intentionally lowering its shipments to the U.S. Imports from Saudi Arabia to the U.S. are now at a two-year low, down by about a third since January, data-tracking firm ClipperData said Friday morning.

"It's providing some confidence to the market they really mean business here at trying to whittle down these inventories and rebalance the market," said Matt Smith, director of commodity research at ClipperData.

Demand also has been strong in the U.S. and abroad. U.S. gasoline demand is rising and likely to break record highs soon, ING Bank said Thursday. Gasoline and diesel futures have made the biggest gains of the month as refineries run hard, analysts have said. And U.S. exports showed a "meaningful increase" last week, Piper Jaffray Cos.' Simmons & Co. International said Thursday.

Mark Waggoner, president of brokerage Excel Futures, said he is tempted to bet against oil now that it is approaching two-month highs and long-term average prices. But demand has been strong, making him hesitant. And he is expecting another, unusual surge of gasoline demand from people in August going to see the first total solar eclipse in the continental U.S. since 1979.

"You're going to have a lot of people driving," Mr. Waggoner said Friday. "We're going to see bigger draws (from storage) like we saw this last week, and that's going to hold the price up."

Analysts say the weekly report on U.S. oil-rig activity due later Friday will be an important factor in determining how producers might still be reacting to the unexpected fall in prices throughout the spring. They have slowed a massive new deployment of drilling rigs and a drop in the active rig count could offer a short-term lift to prices, said a note from ING Bank.

"What we will be looking for is if the growth has plateaued," said Gao Jian, an energy analyst at Shandong-based SCI International.

Gasoline futures recently gained 1.1%, to $1.6623 a gallon, and diesel futures gained 1.3%, to $1.6233 a gallon.

Justin Yang and Jenny W. Hsu contributed to this article.

Write to Timothy Puko at tim.puko@wsj.com

(END) Dow Jones Newswires

July 28, 2017 11:45 ET (15:45 GMT)