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Oil rallies on Saudi comments, weak dollar
[NEW YORK] Oil prices rallied on Wednesday, shaking off earlier weakness as US crude stocks rose less than expected and Saudi Energy Minister Khalid al-Falih said major oil producers would prefer tighter markets than end supply cuts too early.
Markets also benefited from more weakness in the dollar , which dropped 0.7 per cent after stronger-than-expected US consumer inflation figures.
Oil tends to move inversely to the dollar, and has also of late been trading in tandem with stocks, which finished the day up more than 1 per cent.
"The demand fundamentals in today's report were really strong," said Richard Hastings, macro strategist at Seaport Global Securities in Charlotte, North Carolina. "At the same time, you've got a little bit of a weaker dollar day on inflation and that could be that some of the price reaction here."
Brent crude futures settled up US$1.64 a barrel, or 2.6 per cent, to US$64.36 a barrel. US West Texas Intermediate crude futures gained US$1.41, or 2.4 per cent, to US$60.60 a barrel.
US crude inventories rose 1.8 million barrels last week, Energy Information Administration (EIA) data showed compared with expectations for an increase of 2.8 million barrels.
The market rallied after Al Falih said the Organization of the Petroleum Exporting Countries said he would rather leave the oil market slightly short of supplies than lift output cuts too early.
Opec and its partners, including Russia, have curbed supply since January 2017 to drain global stocks in an agreement that continues through the end of the year.
There has been concern about that deal's efficacy due to the sharper-than-expected increase in US production, and that Opec and Russia may look to exit the deal to preserve market share. Al Falih's comments suggest that is not in the offing.
"The comments from Al Falih are by far most significant thing, big-picture," said Michael Wittner, managing director and global head of oil research at Societe Generale. "These statements are saying pretty strongly that they really don't want to go below US$60 Brent."
US production rose to 10.27 million bpd last week, the EIA said, which, if confirmed by monthly data, would represent an all-time US record. The International Energy Agency on Tuesday said the rapid increase in supply, particularly in the United States, could overtake consumption.
Physical markets are reflecting this concern. Prices for crude from the North Sea, Russia, the United States and Middle East have dropped to multi-month lows.