Oil jumps as Saudis planning export cut

Supplies in the U.S. shrinking

NE W Y O R K • Oil surged the most since November as the market appears to be tightening, with Saudi Arabia pledging deeper cuts to crude exports and supplies in the U.S. shrinking.

Futures advanced 3.3 per cent in New York, and the global Brent benchmark closed above US$50 a barrel for the first time since June. Saudi Arabia will cap shipments at 6.6 million barrels a day in August, 1 million lower than a year earlier, Energy Minister Khalid Al-Falih said. In the U.S., crude, gasoline and distillate supplies are seen dropping in the next Energy Information Administration report due Wednesday.

“They have chased the bears back into the woods. Sentiment in the market is mildly bullish,” James Williams, an economist at London, Ark.-based energy-research firm WTRG Economics, said by telephone.

Even as oil surges, there are lingering doubts on the pace of the oil market rebalancing, with rising supplies from the U.S., Libya and Nigeria threatening to hinder curbs by members of the Organization of Petroleum Exporting Countries and its allies. Saudi Arabia won’t act alone to balance the market and other nations should improve their implementation of supply cuts, AlFalih said Monday.

West Texas Intermediate for September delivery climbed US$1.55 to settle at US$47.89 a barrel on the New York Mercantile Exchange, the highest close since June 6. Total volume traded was about 19 per cent above the 100-day average.

Brent for September settlement added US$1.60 to end the session at US$50.20 a barrel on the London-based ICE Futures Europe. The global benchmark crude traded at a premium of US$2.31 to WTI.

Contango, the market structure in which contracts for expiration months ahead trade at a premium to near-term futures, has been shrinking. The spread between the current WTI contract and the one for delivery a month later has narrowed to 13 cents, the least since September 2015.

“It’s increasingly difficult to argue that there is a glut or an overhang of inventory when you see these calendar spreads basically discouraging people from holding inventory,” Tim Evans, an analyst at Citi Futures Perspective in New York, said.

U.S. crude stockpiles probably dropped by three million barrels, and gasoline supplies likely slipped by 1.8 million barrels last week, according to the median estimate in a Bloomberg survey before an EIA report.

“Fundamentals are tightening. Things are looking a little bit better,” Michael Loewen, a strategist at Scotiabank in Toronto, said by phone. “If we continue to see demand do well and some refined products draws in gasoline and distillates, the market should perform pretty well.”