Signs of a tight oil supply were growing in the United States causing oil prices to rise towards $73 a barrel on Friday. The tightness of supply was a result of storm Ida and as U.S.-China trade hopes boosted riskier assets.
Since late August, about three-quarters of the U.S. Gulf’s offshore oil production has remained halted. That equates to about 1.4 million barrels per day and which is also roughly equal to what Nigeria, an OPEC member, produces.
Stephen Brennock of oil broker PVM said, with the restart in offshore crude production lagging, the odds are that the Ida effect will still be felt in the coming weeks.
In addition to the effects of the hurricane, oil and equity markets also got a boost from news of a call between U.S. President Joe Biden and his Chinese counterpart Xi Jinping. Analysts said the call raised hopes for warmer relations and more global trade.
Jeffrey Halley, analyst at brokerage OANDA, said the Biden-Xi phone call has had the same effect on oil markets as it has on other asset classes.
By 1047 GMT, Brent crude gained $1.23, or 1.7%, to $72.68. U.S. West Texas Intermediate (WTI) crude was at $69.22, climbing $1.08 or 1.6%. Brent, however, was set to end the week with a small gain.
Brent crude oil prices have rallied by around 40% this year as demand rebounds from its collapse last year due to the pandemic. The rally was also due to supply cuts by the Organization of the Petroleum Exporting Countries (OPEC).
China Announces First Public State Oil Auction
The Chinese officials said it would release crude oil reserves through a public auction. Following this report, both crude contracts declined more than 1% on Thursday.
The country’s plan to have its first public auction of state crude oil reserves comes as Beijing looks to cool high raw material costs for manufacturers.
On late Thursday, the National Food and Strategic Reserves Administration said in a statement that the releases will take place in phases and are intended for integrated refining and chemical plants.
The agency said that the sales will better stabilise domestic market supply and demand. They will effectively guarantee the country’s energy security and that it plans to regularly release and replenish China’s oil reserves, it said.