Oil rose to the highest level this year as Saudi Arabia curtailed output at its largest offshore field and amid signals of a thaw in US-China trade tensions.
Futures in New York advanced 2.2 per cent Friday. Saudi Arabia was said to trim supply from its giant Safaniyah field to repair a damaged power cable. Chinese President Xi Jinping said US-China trade talks would continue next week in Washington. The countries are racing to reach a deal that would avert a tariff increase on Chinese goods after March 1.
The positive signal from the Chinese leader, paired with an increase of new yuan loans reflecting stimulus plans in effect, encourage trading sentiment, said Bob Iaccino, chief market strategist at Chicago-based Path Trading Partners. ‘If his [Xi’s] view is positive, something is likely to get done. As a trader, I’m buying off of that.’
Oil resumed its rally this week — taking its advance this year to about 22 per cent — after Saudi Arabia announced it would cut supply even further than agreed under a deal with fellow members of the Organisation of Petroleum Exporting Countries and its allies. Russia pledged to make good on its cuts after trailing behind Opec members.
“The main drive of the upward momentum in oil prices finds its roots in the aggressive output cuts announced by the Saudi oil minister,” said Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas SA in London. Also buoying prices is “the elephant in the room, which is Venezuela.”
Venezuelan exports are facing further disruption as the White House considers blocking foreign entities from dealing with the country’s state oil giant Petroleos de Venezuela SA. The move would be a possible next step as the US seeks to choke off President Nicolas Maduro’s power. The US imported the lowest amount of crude supplies on record of Venezuelan crude last week, according to government data.
Refiners have been scaling back production as record production and rising inventories in the US, combined with prospects for weaker global growth, squeeze margins. Data earlier this week showed crude oil inventories rising to 3.6 million barrels last week.
US explorers also expanded drilling activity for the third time in four weeks, Baker Hughes data on Friday shows. Concerns over economic slowdown persist after government data showed US factory production fell to the lowest level in eight months and China’s factory inflation had decelerated for the seventh month.
West Texas Intermediate for March delivery rose $1.18 to close at $55.59 a barrel on the New York Mercantile Exchange, capping a 5.4 per cent gain for the week.
Brent for April settlement climbed $1.68 to $66.25 a barrel on the London-based ICE Futures Europe exchange, up 6.7 per cent this week. Brent was at a $10.27 premium to WTI for the same month.
Saudi Arabian Oil Co.’s Safaniyah field has the capacity to pump 1.2 million to 1.5 million barrels of crude a day, and is a major component of the Arab Heavy grade. The cable was damaged in an accident about two weeks ago and repairs are expected to be completed by early March, people with knowledge of the matter said.