August 30, 2019 11:00 AM, EDT

Oil Heads for Biggest Gain Since Mid-July

Crude OilAndrey Rudakov/Bloomberg News

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Oil headed for its biggest weekly increase since mid-July after a sizable drop in American crude inventories and an apparent pause in U.S.-China trade hostilities eased demand fears.

Futures in New York fell 0.7% on Aug. 30 but were up 4% for the week. China said Aug. 30 that it wouldn’t immediately retaliate against the latest White House tariff increase, spurring optimism that Beijing wants to reach a deal. Traders were watching for any disruptions from Hurricane Dorian, which was forecast to become a major storm late Aug. 30 as it heads toward Florida.

“There’s discussions about China and the U.S., but right now we are starting to be in the period where the tropical weather is an increasing factor,” said Olivier Jakob, managing director at Petromatrix GmbH.

Despite this week’s gains, oil remains under pressure as the outlook for the global economy continues to be weak and the U.S. pumps out crude at record-high levels. The Organization of Petroleum Exporting Countries and its allies said this week they expect to deplete the global oil surplus with their cuts, and falling inventories in America are indicating some level of success.

President Donald Trump said in a Fox News radio interview Aug. 29 that the U.S. and China were scheduled to hold trade talks. He didn’t give further details. Trump also said that tariffs are working and that he wasn’t going to give up.

Traders are also keeping an eye on Hurricane Dorian, which now is expected to become a Category 4 storm and make landfall on Florida’s east coast, the first major hurricane to hit the area in 15 years. If the storm only strikes Florida it will likely be bearish for crude prices as it will stymie demand, according to UBS Group AG analyst Giovanni Staunovo. However, if it moves into the Gulf of Mexico, it could cut U.S. output and lift prices, he added.