Oil prices rose on Friday, registering the strongest weekly gains in more than a month as support from optimism over a U.S.-China trade deal, falling U.S. crude stocks and possible action from OPEC to extend output cuts outweighed broader economic concerns.
West Texas Intermediate (WTI) crude futures settled 43 cents, or 0.8 per cent, higher at $56.66 a barrel, clocking a weekly rise of more than 5 per cent, its strongest since June 21. Brent crude ended 35 cents, or 0.6 per cent, higher at $62.02 a barrel, logging a weekly gain of more than 4 per cent, its best since Sept. 20.
Oil got a boost from signs of progress in talks on resolving the U.S.-China trade dispute that has weighed on crude demand. Washington officials on Friday said the United States and China were close to finalizing the first part of a trade deal after months of a tariff war.
“Some of the vibes out of the U.S.-China talks are positive again and that’s certainly what’s fueling the stock market, so oil is benefiting from it,” said John Kilduff, a partner at Again Capital LLC in New York.
Wall Street, which oil prices often follow, approached a record high after the trade comments from Washington.
The weekly performance was underpinned by the surprise drop in U.S. inventories, with crude stocks falling by about 1.7 million barrels last week.
“We’re holding our ground after a pretty good up week with the surprise draw in inventories this week,” said Phil Flynn, senior energy analyst at Price Futures Group.
Yet concerns over weakening economic growth continued to drag on prices.
“Slowing global activity will see demand drop, so the reality is that oil rallies will be limited,” said Jeffrey Halley, senior market analyst at OANDA.
Economists in a Reuters poll said a steeper decline in global economic growth remains more likely than a synchronized recovery, even as multiple central banks dole out rounds of monetary easing.
Providing further price support this week, officials at the Organization of the Petroleum Exporting Countries said extended supply curbs are an option to offset the weaker demand outlook in 2020.
Saudi Arabia, OPEC’s de facto leader, wants to focus first on boosting adherence to the group’s production-reduction pact with Russia and other non-members, an alliance known as OPEC+, before committing to more cuts, sources told Reuters. The alliance in July renewed the pact to cut output by 1.2 million barrels per day since Jan. 1, until March 2020.
“The energy complex is also deriving some support from slowing in the pace of U.S. crude production gains,” Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.
In the United States, energy companies reduced the number of oil rigs operating this week, leading to a record 11-month decline as producers follow through on plans to cut spending on new drilling. The rig count is seen as an indicator of future output.