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Prices jumped by more than 6% on Monday after the Organization of the Petroleum Exporting Countries and allies pledged voluntary production cuts. Image Credit: AP

Dubai: Oil headed for a third straight weekly gain after OPEC+ surprised the market with a production cut and US inventories dropped.

West Texas Intermediate futures eased below $80 a barrel, but are still more than 5 per cent higher this week. Monday’s surge was the largest in a year after the Organization of Petroleum Exporting Countries and its allies cut more than 1 million barrels of daily output from next month. Saudi Arabia has since hiked prices of all its oil sales to customers in Asia.

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Crude has risen about 25 per cent since mid-March, when it collapsed to a 15-month low on the back of a banking crisis that prompted a flight from riskier assets. The move by OPEC+ took out some speculative short sellers, pushing prices higher just as expectations of a recovery in Chinese demand, shrinking US inventories, and a weakening dollar also lifted the commodity’s allure.

Commercial crude stockpiles in the US sank 3.7 million barrels last week, Energy Information Administration data showed. Holdings of gasoline and distillates - a category which includes diesel - both shrank, while crude inventories at the key storage hub at Cushing, Oklahoma, similarly contracted.

Traders are also looking ahead to data on US initial jobless claims due later Thursday, followed by nonfarm payroll figures on Friday. Both will give further clues on the next steps that the Federal Reserve will take amid speculation it’s nearing the end of its tightening campaign.