Tightening global oil supplies and expectations that the Federal Reserve’s tightening is nearing an end propelled crude to the longest run of weekly gains in more than a year. 

West Texas Intermediate broke through the psychological level of US$80 a barrel this week, capping a rally that started in late June and has nearly erased this year’s losses. Driving the advance are OPEC+ linchpins Saudi Arabia and Russia curbing exports, with Moscow reaffirming its commitment to those obligations this week. That has led banks, including Standard Chartered Plc and UBS Group AG, to forecast tightening global balances in the coming months.

Signs of supply tightness are showing up in both physical and financial markets. Inventories at the key US storage hub in Cushing, Oklahoma, have declined by 7.5 million barrels during the past four weeks, pushing stockpiles to their lowest since May. That’s supporting a widening in the backwardation of WTI’s nearest two contracts, a bullish pricing pattern that has grown to its largest since November.

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Russia reduced oil exports in July under commitments to OPEC+ and intends to do so again in August, Energy Minister Nikolai Shulginov said, according to a report from state-run news service Tass. In the week to July 23, Russia’s seaborne flows from Baltic and Black Sea ports slumped to their lowest in seven months, according to vessel-tracking data monitored by Bloomberg.

Prices also have been aided by broader risk-on sentiment, as equity markets are trading at yearly highs. The global outlook for demand improved amid signs of additional stimulus for the Chinese economy and speculation that the Federal Reserve’s rate hikes are near or at an end. 

Despite the rally, traders are bracing for a potential correction as crude has traded in overbought territory on its relative strength on several occasions this week. Prices remain volatile and prone to large swings as open interest hovers near the lowest levels since January. 

Prices:

  • WTI for September delivery rose 49 cents to settle at US$80.58 in New York.
  • It’s up 4.6 per cent for the week.
  • Brent for September settlement rose 75 cents to settle US$84.99 a barrel.