Oil Prices Continue to Gain on Investor Optimism

By Christopher Alessi Features Dow Jones Newswires

Oil prices advanced Friday, as Brent crude marked a week of trading above the symbolic $60-a-barrel level, boosted by geopolitical uncertainties.

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Brent, the global benchmark, was up 0.54%, at $60.95 a barrel on London's Intercontinental Exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading up 0.61%, at $54.87 a barrel.

Brent last Friday climbed above $60 for the first time in over two years. On Thursday, WTI, the U.S. standard, hit its highest level since July 2015.

"Geopolitical risk is back in the picture in a very clear way," said Richard Mallinson, an analyst at consultancy Energy Aspects, citing ongoing conflict in northern Iraq and Venezuelan financial instability.

Iraqi troops have in recent weeks clashed with forces from semiautonomous Kurdistan, disrupting crude production and exports from the northern, oil-rich region. The conflict was ignited when the Kurds in late September voted nearly unanimously to secede from Baghdad in a controversial independence referendum.

Mr. Mallinson estimated that approximately 300,000 barrels a day of Iraqi production are currently offline.

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Meanwhile, Venezuela said Thursday it would seek to restructure its debt. But if the country were to default, the economic fallout would likely engulf the state-owned oil company, Petróleos de Venezuela SA. That could potentially lead to a disruption in oil flows, reducing global supply, according to Mr. Mallinson.

The market has also been buoyed over the past week by a growing consensus that the Organization of the Petroleum Exporting Countries and Russia will move to extend their output cut agreement when it expires in March.

Harry Tchilinguirian, global head of commodity markets strategy at BNP Paribas, expects OPEC to agree to an extension at the cartel's official meeting in Vienna on Nov. 30, potentially lengthening it through the end of 2018.

However, even though "an extension is the likely path of least resistance, we expect compliance with pledged cuts to be challenged by the duration of output restraint and to fall in the second half of 2018," Mr. Tchilinguirian wrote in a note.

OPEC and some major producers outside the cartel, including Russia, first agreed late last year to cap their production at around 1.8 million barrels a day lower than peak October 2016 levels, with the aim of alleviating global oversupply and boosting prices.

Among refined products Friday, Nymex reformulated gasoline blendstock -- the benchmark gasoline contract -- was up 1.65%, at $1.77 a gallon. ICE gasoil, a benchmark for diesel fuel, changed hands at $544.75 a metric ton, up 0.55% from the previous settlement.

Write to Christopher Alessi at christopher.alessi@wsj.com

Oil prices advanced to a fresh two-year high Friday, buoyed by expectations for OPEC to extend its deal to cut production and the steady reduction of excess U.S. supply.

Light, sweet crude for December delivery gained $1.10, or 2%, to $55.64 a barrel on the New York Mercantile Exchange, the highest level since July 2015. Brent, the global benchmark, also rose to another two-year high, settling up $1.45, or 2.4%, to $62.07 a barrel.

The oil market has rallied as investors have been reassured by a decline in crude inventories and strong rhetoric from Saudi Arabia supporting the deal among the Organization of the Petroleum Exporting Countries and other major producers to stick with supply cuts.

Last year, OPEC, along with several other countries including Russia, agreed to cut production by 1.8 million barrels a day to alleviate the global overhang of crude that dragged down prices. Traders are looking ahead to the cartel's official meeting in Vienna on Nov. 30, to see if producers extend the deal beyond March 2018.

"I think the prices are already reflecting an extension of the OPEC deal, " said Tariq Zahir, managing member of Tyche Capital Advisors. For now "it's kind of a wait-and-see game."

Prices have also gotten a boost from data showing that the amount of crude oil in storage has fallen in recent weeks. On Wednesday, the U.S. Energy Information Administration reported that crude stockpiles fell by 2.4 million barrels in the week ended Oct. 27, extending a trend.

"U.S. inventories are in a destocking mode," said Dominick Chirichella, an analyst at the Energy Management Institute. "That's very encouraging."

Mr. Chirichella added that geopolitical risk has heightened this year, giving rise to concerns of a disruption in oil supply.

"Geopolitical risk is back in the picture in a very clear way," said Richard Mallinson, an analyst at consultancy Energy Aspects, citing conflict in northern Iraq and Venezuelan financial instability.

Iraqi troops have in recent weeks clashed with forces from semiautonomous Kurdistan, disrupting crude production and exports from the northern, oil-rich region. The conflict was ignited when the Kurds in late September voted nearly unanimously to secede from Baghdad in a controversial independence referendum.

Mr. Mallinson estimated that approximately 300,000 barrels a day of Iraqi production are currently offline.

Meanwhile, Venezuela said Thursday it would seek to restructure its debt. But if the country were to default, the economic fallout would likely engulf the state-owned oil company, Petróleos de Venezuela SA. That could potentially lead to a disruption in oil flows, reducing global supply, according to Mr. Mallinson.

Gasoline futures rose 1.3% to $1.7934 a gallon and diesel futures rose 1.8% to $1.8866 a gallon.

Write to Stephanie Yang at stephanie.yang@wsj.com and Christopher Alessi at christopher.alessi@wsj.com

(END) Dow Jones Newswires

November 03, 2017 16:47 ET (20:47 GMT)