Oil prices rose about 2 percent on Thursday, rallying for a second day after a surprise U.S. crude inventory drop and ahead of talks next week between OPEC and other oil producers on curbing oversupply.
Oil got an additional lift from a drop in the dollar to its lowest against the yen in four weeks after the U.S. Federal Reserve kept monetary policy unchanged and signaled rates may rise more slowly than it had previously expected.
A weaker dollar makes energy imports cheaper for oil-reliant nations while low U.S. rates mean credit will remain easier to come by.
U.S. West Texas Intermediate crude futures were up $1, or 2.2 percent, at $46.34 a barrel by 1:35 p.m. ET (1735 GMT). Week-to-date, WTI was up about 8 percent for its largest weekly advance in a month.
Brent crude futures rose 66 cents, or 1.4 percent, to $47.49 a barrel.
WTI’s discount to Brent was at its smallest since early August, reflecting the improved fundamentals for U.S. crude.
Oil has rallied since Wednesday’s report by the U.S. Energy Information Administration that crude stockpiles fell 6.2 million barrels last week, versus market expectations for a build of 3.4 million barrels. U.S. crude stocks have fallen by an unexpected 21 million barrels this month so far.
Even so, energy monitoring service Genscape reported on Thursday a build of about 213,000 barrels at the Cushing, Oklahoma delivery base for WTI futures for the week ended Sept. 20, traders said.
Cushing inventories are an important component of total U.S. stockpiles. The Genscape report, coming on top of a build of 526,000 barrels at Cushing reported by the EIA for the week ended Sept. 16, suggested that total U.S. stockpiles may start climbing again soon.
“We also feel that the market will need to recognize bearish aspects within the (EIA) data,” Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates said, citing rising U.S. crude production as one.
The U.S. crude drawdown contrasted with news that Russian oil output had hit a new record high above 11 million barrels per day. Libya also resumed this week export of its first oil cargo since at least 2014 from the port of Ras Lanuf. Nigeria’s Forcados crude stream oil was, meanwhile, due to restart at the end of September, for the first time since February.
Some analysts saw justification for oil to rise before the Sept. 26-28 talks in Algeria between the Organization of the Petroleum Exporting Countries and non-OPEC members to discuss ways to stabilize the oil market, including a potential freeze in output, which is already at, or near, record highs in countries such as Russia and Saudi Arabia.
“It’s only logical that a few days before that meeting, shorts will start covering and yesterday’s (U.S.) stock figures provided the perfect excuse,” PVM Oil Associates strategist Tamas Varga said.
Analysts are not attaching a high chance to a deal materializing, and even if it did, they are uncertain it would be enough to help clear the global overhang of crude supplies.
“I wouldn’t exclude seeing further strength today and tomorrow, but when the meeting is over, the downtrend is going to resume,” PVM’s Varga said, adding that a drop below $45 a barrel in Brent could be on the cards.
With global production is still higher than consumption, analysts are looking for prices to remain broadly range-bound.
“In a world of continued (U.S.) shale productivity gains that cause other oil producing regions around the world to become highly focused on cost competitiveness, we believe investors and companies should prepare for an environment of range-bound oil prices,” Goldman Sachs said in a note to investors published late on Wednesday.
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