US crude futures climb over $2/bbl, notches third monthly hike

(C) Reuters. FILE PHOTO: A pump jack is seen at sunrise near Bakersfield, California October 14, 2014. REUTERS/Lucy Nicholson/File Photo

By Erwin Seba

HOUSTON (Reuters) -U.S. crude oil prices gained end its cycle more than $2 a barrel near the end of trade on Thursday on expectations that production cuts by the Organization Petroleum Exporting Countries and its allies, called OPEC+, would continue through the end of 2023.

U.S. West Texas Intermediate crude futures for October settled at $83.63 a barrel, up $2, or 2.45%.

Brent crude futures for October, expiring on Thursday, finished up $1, 1.16%, at $86.86 a barrel. The more active November contract gained $1.59, or 1.02% at $86.83.

“The crude market is reacting to OPEC production cuts being extended,” said Andrew Lipow, president of Lipow Oil Associates. “The cuts could go through the end of the year.”

On Thursday, six-month U.S. crude oil futures traded as low as $3.83 below crude for front month delivery, the steepest discount since Nov. 17, signalling tight supplies and encouraging inventory draws.

Also Thursday, the U.S. Energy Information Administration said U.S. field production of crude oil rose 1.6% in June to 12.844 million barrels per day, the highest since February 2020, before the COVID-19 pandemic destroyed demand for fuel and other oil products.

Also adding to tight supply expectations, U.S. government data on Wednesday showed the country’s crude inventories fell by a larger-than-expected 10.6 million barrels last week, depleted by high exports and refinery runs.

Analysts expect Saudi Arabia to extend a voluntary oil production cut of 1 million bpd into October, adding to cuts put in place by OPEC+.

“With Brent prices having stalled in the mid-$80s … the prospect of those Saudi barrels returning to the market any time soon looks slim and the impact is increasingly being felt across the world as commercial stock levels of crude and fuel products continue to drop,” said Ole Hansen, a Saxo Bank analyst.

U.S. consumer spending increased 0.8% last month, the Commerce Department reported on Thursday, but slowing inflation strengthened expectations the Federal Reserve would keep interest rates unchanged next month.

The U.S. central bank can end its cycle of rate increases if the labour market and economic growth continue to slow at the current gradual pace, Eric Rosengren, the former president of the Boston Fed, said on Wednesday.

Weak Chinese factory data limited further gains, however.

China’s manufacturing activity shrank again in August, an official factory survey showed on Thursday, fuelling concerns about weakness in the world’s second-biggest economy.

China’s official purchasing managers’ index (PMI) rose to 49.7 from 49.3 in July, the National Bureau of Statistics said, but it remained below the 50-point level. A reading above 50 points represents expansion from the previous month.

The U.S. government on Wednesday revised down its gross domestic product growth for the second quarter to 2.1%, from the 2.4% pace reported last month, and data released separately showed private payroll growth slowed significantly in August.