Brent crude held firmly above $50 a barrel in Asian trade on Friday as a bullish momentum continued, fuelled by hopes of an output freeze by key producers and data showing robust US demand. Prices have roared back to enter a bull market, rallying more than 20 per cent from lows seen earlier in August when they pushed below $40 a barrel for the first time since April.
Members of the Organization of the Petroleum Exporting Countries and their rivals outside the group are to meet informally next month in Algeria, and there have been hints their talks could include ways to stabilise the oversupplied crude oil market.
Adding to that, official US government data showed US commercial crude stockpiles fell by 2.5 million barrels and gasoline stocks by 2.7 million barrels in the week to August 12, indicating robust demand in the world’s top oil consumer. Weakness in the US currency has also helped boost the dollar-traded commodity by making it cheaper, encouraging demand. On Thursday, Brent closed above $50 for the first time since July 4.
“The bounce in oil was helped along by further jawboning from the former president of OPEC, Chakib Khelil, who stated that an OPEC supply-freeze deal was on course because its biggest members were already producing a record levels,” said Angus Nicholson, a Melbourne-based analyst with IG Markets.
At around 0920 IST on Friday, US benchmark West Texas Intermediate for delivery in September was up 13 cents to $48.35. Brent added one cent to $50.90 a barrel. Saudi Arabia, OPEC’s top producer, and non-OPEC member Russia have hinted at cooperation on market stability ahead of the September meeting.
Analysts however doubt if a freeze deal will be reached, recalling that an earlier attempt in 2016 failed in April due to Iran’s refusal to come on board. Iran has said it will continue ramping up production, which has been dented by years of Western economic sanctions lifted only in January.
But Nicholson said the possibility that Iran would not commit to any deal this time “means little when the oil price has such strong upwards momentum”. He also pointed to figures by the industry group American Petroleum Institute showing that US consumption of gasoline reached record levels in July. Stephen Innes, senior trader at OANDA, said traders were also in a short-covering mood into the weekend, meaning they are buying back shares sold earlier on expectations prices would rise further.