(Bloomberg) — Oil rose to a three-month high, closing above a key technical barrier, as signs of a tighter crude market outweighed the prospect of another hike from the Federal Reserve.
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West Texas Intermediate settled above $78 a barrel as OPEC+ cuts begin to materialize, tightening global supplies. Adding to the intraday rally was an outage at Exxon’s Baton Rouge refinery, where a gasoline-making catalytic cracker may be down for several weeks. The disruption during the high-demand summer driving season also boosted the 3-2-1 crack — a measure of the profitability of turning crude into fuel — to the highest since March.
US benchmark crude closed above its 200-day moving average, which has provided strong resistance since August. Oil holding above that threshold could spur additional buying. Risk-on sentiment in equity markets, which are trading near the highest levels this year, also is bolstering crude.
Crude is still down slightly for the year, despite the production cuts by the Organization of Petroleum Exporting Countries and its allies, including Russia. On the demand side, China’s stalled recovery has provided a persistent headwind for industrial commodities, but the nation has signaled it will add stimulus to boost its economy.
“Commentary out of China is disappointing to some markets, but the fact that we are seeing stimulus, if they do anything to support the economy, it’s positive for crude because I don’t think crude has priced in stimulus,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth.
Among other metrics, there are signs of strength in the market’s underlying structure. WTI’s prompt spread — the difference between its two nearest contracts — was about 36 cents a barrel in backwardation, a bullish pattern that’s near the widest since mid-November.
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–With assistance from Chunzi Xu.
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