Oil prices settled up 2% on Wednesday as traders and investors ignored a build in U.S. crude stockpiles from last week to focus on the likelihood of OPEC extending crude production cuts when it meets later this week to assess price support measures.
The U.S. government’s Energy Information Administration (EIA) said domestic crude inventories rose by 4.6 million barrels for the week ended Sept. 15 as supply balances for unprocessed oil remained higher than usual in the aftermath of Hurricane Harvey which struck Texas late last month and shut nearly a quarter of the country’s refining capacity. Analysts surveyed by Reuters and Bloomberg had predicted a stockpile growth of 3.5-3.9 million barrels for the week.
Oil prices pared some early gains after the EIA report but picked up steam again toward their settlement on speculation that OPEC, or the Organization of the Petroleum Exporting Countries, will extend until end of next year its schedule to reduce output by 1.8 million barrels per day (bpd) through March 2018.
The market has been fixated since Tuesday on the possibility of OPEC extending supply cuts after the oil minister of Iraq, one of the key members in the 14-nation producer cartel, said the group was considering range of price support options.
The front-month contract in Brent, the global oil benchmark, settled up $1.15, or 2.1%, at $55.29 a barrel on London’s Intercontinental Exchange. Its peak for the day was $56.48, marking a five-month high.
The front-month in U.S. crude’s West Texas Intermediate (WTI) futures settled up $0.93, or 1.9%, at $50.41 a barrel on the New York Mercantile Exchange. The session peak for WTI was $50.65.
Combined with the gains of the past two months and the rise so far for September, oil prices were on track to finish the third quarter up by around 16% — the largest quarterly gain since 2004, data showed.
Some market participants think the current rally will not last, pointing to Wednesday’s EIA data which, aside from the larger-than-expected crude build, showed shale oil output rising by 160,000 bpd.
“This indicates the workings of shale and how fast it can come back online despite the debilitating effects of Hurricane Harvey,” said Tariq Zahir, managing member at New York energy hedge fund Tyche Capital Advisors. “Barring any extraordinarily bullish measures announced by OPEC, we feel crude is at the high end of the range at this point.”