Oil prices officially charged into a bull market Thursday as the prospect of an output freeze by major producers, data showing the first weekly fall in U.S. crude supplies in a month, and a decline in the dollar boosted prices.
Crude-oil prices have advanced more than 20% from their Aug. 2 low over the past several sessions, signifying a bull-market run.
September West Texas Intermediate crude CLU6, -0.27% climbed by $1.43, or 3.1%, to settle at $48.22 a barrel on the New York Mercantile Exchange. That is 22% above the recent settlement low of $39.51 on August 2. Prices Thursday logged a sixth-straight session gain.
Brent crude also rallied to settle 22% above their low from earlier this month. October Brent LCOV6, -0.35% settled at $50.89 a barrel on the ICE Futures exchange in London, up $1.04, or 2.1%, Thursday.
“This is definitely an impressive move higher,” said Tyler Richey, co-editor of The 7:00’s Report. It appears that “the freeze speculation” is working for the Organization of the Petroleum Exporting Countries again, he said.
Earlier this month, the 14-member group of major oil producers said it would hold an informal meeting on the sidelines of an energy forum in Algeria on Sept. 26 to Sept. 28 to discuss ways to stabilize the oil market.
Saudi Arabia, OPEC’s top producer, and non-OPEC Russia, the world’s largest crude producer, have expressed willingnessness to participate in those talks, which some say could lead to a pact to freeze production levels.
Iran has chimed in, reiterating plans to raise its production back up to pre-sanction levels, raising doubts over a deal to freeze output. An attempt last spring to reach anagreement in Doha, Qatar to freeze output failed after Iran refused to join in, prompting the Saudis to give up on the plan.
But talk from Iran didn’t a lasting damper on oil prices, which trade roughly 8% higher week to date.
Adding to fire to the rally, the U.S. Energy Information Administration on Wednesdayrevealed that domestic crude inventories fell for the first time in four weeks and the dollar was set to end the week lower against its currency rivals, with the ICE U.S. Dollar Index DXY, +0.30% down about 1.6% week to date.
Darin Newsom, DTN senior analyst, pointed out Thursday that this week’s oil rally has established a new four-week high—a “secondary bullish technical signal meaning that the market could continue to rally despite minor, short-term, indicators being overbought.”
Still, traders need to keep in mind that the current front-month September futures contracts expire at the Nymex settlement on Monday. October WTI crudeCLV6, -0.37% will become the new front and it’s trading higher than the September contract, at $48.89 a barrel Thursday.
Newsom said the September-to-October price spread is at a “contango” of roughly 67 cents a barrel. This could put the October contract at the July high of $49.35 when it takes over as the spot contract, he said.
Richard Hastings, macro strategist at Seaport Global Securities, said the rally in the October WTI contract is “pretty substantial, quickly moving from about $40 per barrel to almost $48.”
“We see some resistance at about $49.60…showing how tough it is to get back to and beyond $50,” he said. But “a couple of hurricanes in the Gulf of Mexico would help.” Atlantic hurricanes can disrupt oil production in the region.
Luckily, at least for the oil-price bulls, the U.S. National Oceanic and Atmospheric Administration recently raised its expectations for the Atlantic hurricane season which ends on Nov. 1.