​WTI near $52, set for biggest weekly gain in two years

Oil headed for its biggest weekly increase in two years in New York as OPEC cutbacks reined in supply while reassurance from the Federal Reserve buoyed the outlook for demand.

Futures returned to a bull market this week after recovering about 20 percent from the lows reached in December. Saudi Arabia gave assurances on Wednesday that the production cuts by OPEC and its partners starting this month will be deep enough to prevent any surplus.

Nonetheless, crude remains 30 percent below the four-year high it hit in October as U.S. shale output continues to surge and China’s economy shows signs of slowing.

“The mood brightens, and the market realizes that the world economy and oil demand are not grinding to a halt,” said Norbert Ruecker, head of macro and commodity research at Julius Baer Group Ltd. in Zurich. “Moreover, there is confidence that the petro-nations will cut supplies as promised to balance the market.”

West Texas Intermediate for February delivery slipped 34 cents to $52.25 a barrel on the New York Mercantile Exchange as of 8:46 a.m. local time. It has added 9 percent this week, the biggest increase since December 2016, and a nine-day run of gains through Thursday was the longest since 2010.

Brent for March settlement fell 47 cents to $61.21 a barrel on the ICE Futures Europe Exchange, bringing its weekly advance to 7.3 percent. Earlier in the day, it had been on track for a record-setting 10-day run of increases. The global benchmark crude traded at a premium of $8.62 a barrel to WTI for the same month.

Trade Talks

Crude’s direction in the coming weeks may be determined by whether the Organization of Petroleum Exporting Countries, and allies including Russia, implement output cuts they have promised for the first six months of 2019. Also crucial will be the outcome of trade negotiations between the U.S. and China -- the world’s two biggest economies. A deal between the nations could boost flagging global growth that underpins oil demand.

Saudi Arabian Energy Minister Khalid Al-Falih said on Wednesday that the cut of 1.2 million barrels a day agreed by the OPEC+ coalition will be sufficient to balance markets, and that the group is prepared for further action if it proves inadequate.

“Sentiment in the oil market has turned around this week,” said Jens Naervig Pedersen, senior analyst at Danske Bank A/S in Copenhagen. The reversal “is on the back of a combination of OPEC+ production cuts taking effect, a stabilization in risk sentiment in equity markets and a weaker dollar. In addition, the oil market will be monitoring trade talks, which seem to progress slowly.”

Uncertainty Persists

While recent progress seen in U.S.-China talks has lifted investor sentiment, global financial markets are still struggling to decipher what exactly may have been promised in their negotiations this week.

China’s Ministry of Commerce said Thursday that the talks between the two sides were “extensive, in-depth and detailed” and laid the foundation for a resolution. Chinese Vice Premier Liu He is likely to travel to the U.S. later this month to meet with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.

Meanwhile, dovish commentary by Fed Chairman Jerome Powell and his deputy Richard Clarida has added to positive investor sentiment. They said that the central bank will be especially cautious about pushing ahead with interest-rate increases after raising them four times last year.

© 2019 Bloomberg L.P