Oil prices have reached their biggest gain since December, jumping 8.6 percent on Friday. Prices were lifted due to the renewed production-cut commitments from a few key oil producers and the uncertainty in Venezuela.
U.S. crude rose above $50 for the first time since late May, retracing its losses during an unexpected selloff that began in March. Analysts and traders alike had expected a rally to $60, considering the growing demand and the output curb.
Data on the latest active oil rigs showed modest gains. U.S. West Texas Intermediate crude futures were up 1.4 percent, or 67 cents, to $49.71 per barrel on Friday closing, increasing 8.6 percent for the week, or $3.98 a barrel. This is its first monthly gain since February.
Brent crude also surged 2 percent, or $1.01, at $52.50 a barrel on London’s ICE Futures exchange, jumping over 9.3 percent for the week.
This is the biggest weekly gain since December, when the OPEC (Organization of the Petroleum Exporting Countries) announced a deal that aims to cut production by about 1.8 million barrels per day and include Russia and other leading exporters.
“There’s a lot of bullish factors for sure out here,” John Macaluso, trader at Tyche Capital Advisors, which oversees $8 million worth of assets, said in a Fox Business report. Macaluso advised investors to be cautious, but added that if U.S. production decreases a little, “that would be something that could push us over the top.”
The front of the crude oil curve moved into backwardation, ahead of the contract expiry on Monday, during which the front-month contract is above the subsequent month. This shows that investors are not anticipating recent gains to last, CNBC reports. Brent also notably moved up, breaking from its 200-day moving average for the first time since May.
U.S. crude and gasoline stocks experienced steep falls. Crude stocks dropped by 7.2 million barrels in the week ending July 21 due to massive refining efforts and an increase in exports, the Energy Information Administration (EIA) reported. The decline was greater than analysts’ expectations, marking the fourth consecutive week of declines.
Gasoline stocks dropped by 1 million barrels against analysts’ estimates of 614,000 decrease in barrels.
Brimming U.S. crude inventories have been making it challenging for OPEC members that have initiated supply cuts to bolster prices. For this reason, inventory data will be observed closely.
Saudi Arabia, OPEC’s top exporter, announced that it would be further limit its oil output to 6.6 million barrels a day starting in August. Kuwait and the United Arab Emirates also committed to reduce exports.
“Exports from Saudi [Arabia] to the U.S. take approximately seven weeks to arrive,” Matt Smith, director of commodity research at ClipperData, said in a report. “Hence, as we swiftly approach the end of July, we can see from Saudi deliveries this month that they are not just talkin’ the talk, but walkin’ the walk.”
Traders are also worried about the possible disruptions in crude supplies from Venezuela. The country is currently having a national election for a constituent assembly that will redraft the constitution, MarketWatch reports.
Some analysts remain bearish toward the oil market. “We believe the latest price rise is on a fragile footing,” analysts at Commerzbank said. They added that OPEC production may increase in the months coming as the organization has not yet included production cuts from Libya and Nigeria.
Meanwhile, Baker Hughes’ weekly report on Friday indicated that the number of active drilling rigs inched by 2 to 766 rigs during the week. The number dropped by 1 last week just after an increase two weeks in a row.
Several oil production and exploration companies also plan to limit their expenses for the year as a result of a year-to-date oil price decline of about 8 percent.