Oil Rises to Five-Week High on Freeze Optimism, Weakening Dollar

Andrey Rudakov/Bloomberg News

Oil closed at its highest level in five weeks, bolstered by a weakening dollar and speculation that OPEC talks next month could result in a crude output freeze.

Futures climbed 1.8% in New York, extending gains following comments from Saudi Arabia’s energy minister that the country is prepared to act to stabilize markets. The dollar extended declines following mixed U.S. economic reports. A weaker dollar increases investor appetite for commodities. While government data is expected to show crude inventories rose, fuel stockpiles are forecast to shrink.

Oil has advanced about 18% since closing below $40 a barrel and tumbling into a bear market earlier this month. Russian Energy Minister Alexander Novak told Arabic-language newspaper Asharq Al-Awsat that the nation was open to cooperating to stabilize markets after Saudi Energy Minister Khalid Al-Falih said talks in Algiers may result in action.

"The longer they can put that story out there that there’s going to be a potential production cap, the better they’ll be able to support prices," said Bob Yawger, director of the futures division of Mizuho Securities USA Inc. in New York. "There is no coincidence that this is happening."

West Texas Intermediate for September delivery added 84 cents to settle at $46.58 a barrel on the New York Mercantile Exchange, the highest since July 12. Total volume traded Aug. 16 was about 4% above the 100-day average.

Brent for October settlement rose 88 cents, or 1.8 percent, to close at $49.23 a barrel on the London-based ICE Futures Europe exchange, the highest since July 4. The global benchmark crude settled at a $2.01 premium to WTI for October delivery.

A possible deal on capping production between members of the Organization of Petroleum Exporting Countries and nonmember countries was first flagged in February but discussions in April ended with no final accord.

“I fail to see a practical way that either the Saudis or the Iranians will reduce production,” said Thomas Finlon, director of Energy Analytics Group in Wellington, Florida. “I just don’t think it’s going to happen. So I think this might represent a very good selling opportunity.”

Nigerian Minister of State for Petroleum Emmanuel Kachikwu said he has “sparse” optimism that OPEC will trim output. Russia sees no signals that Iran will change its position on a production cap and agree to an output freeze, news service Interfax reported, citing an unidentified diplomatic source close to the talks.

OPEC members will discuss the market when they gather for the International Energy Forum in Algeria next month, according to Mohammed bin Saleh Al-Sada, Qatar’s energy and industry minister and the group’s current president.

U.S. crude stockpiles are forecast to have grown by 950,000 barrels, according to a Bloomberg News survey ahead of a weekly report from the Energy Information Administration on Aug 17. Supplies unexpectedly rose by 1.1 million barrels in the week ended Aug. 5. Gasoline inventories probably fell by 1.7 million barrels the week ended July 13, and distillate stockpiles are forecast to have declined by 600,000 barrels.

Oil-market news:

• Banks from Citigroup to Saxo Bank have said they don’t see discussions in Algiers resulting in a freeze, while JPMorgan’s David Martin said the bank is "cautiously optimistic."

• Iranian Oil Minister Bijan Namdar Zanganeh hasn’t decided yet whether to attend any talks between producers at the International Energy Forum conference, an oil ministry spokesman said by phone.

• Venezuela’s exports fell more than 300,000 barrels a day in June, according to a report written by Luisa Palacios, a senior managing director at Medley Global Advisors.