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Oil Gains on Potential Tighter Russian Sanctions, Algo Buying
(Bloomberg) -- Oil rose on the possibility of tighter sanctions on Russian crude, and algorithmic buying activity extended gains after US inventory data kept prices above a key technical floor.
West Texas Intermediate climbed 2.5% to settle above $70 a barrel, the highest close in more than two weeks. The market shrugged off swelling US gasoline and distillate stockpiles and OPEC’s demand revision. Brent rose 1.8% to settle above $73.50. The US benchmark also breached its 50-day moving average after the market close.
US government data released Wednesday was mixed. A bullish draw in inventory at the key Cushing, Oklahoma, storage facility countered a 5.09 million-barrel buildup of gasoline inventories.
Though prices briefly retreated after buildups in product inventories signaled softer demand, buying activity from algorithmic traders lifted prices as WTI held above a key technical floor.
So-called commodity trading advisers were likely to buy during the session, as long as “prices did not break below $68.45,” said Daniel Ghali, a commodity strategist at TD Securities. “Buying activity was exacerbated by a cluster of subsequent buying programs” in the price range of $69.35 to $69.70.
A report that the the Biden administration is considering tougher sanctions on Russia’s oil trade provided the impetus for algorithmic traders to latch on to these trend signals, Ghali added in a note. Potential sanctions could tighten the market and drive up prices before President-elect Donald Trump takes office. Details of the possible measures were still being worked out, according to people familiar with the matter.
As 2025 approaches, the supply and demand outlook is growing more muddled, and the fears of a crude glut that previously held an iron grip on the market have shown signs of abating. On Tuesday, the US Energy Information Administration reversed its prediction for a surplus and now calls for a small deficit next year.
Conversely, OPEC made its deepest cut yet to global demand growth forecasts for this year, slashing projections by 27% since July. The group slashed its 2024 consumption growth forecast by 210,000 barrels a day, but traders kept their response muted, as the cartel belatedly recognizes deteriorating demand from China.
“The lower demand forecast by OPEC is being taken lightly in that it seems more about a ‘reason’ for them to keep from raising production,” said Dennis Kissler, senior vice president for trading at BOK Financial Securities.
Meanwhile, the International Energy Agency leads the bearish narrative, projecting a 1 million barrel a day surplus next year, despite the OPEC+ decision to delay production increases. The IEA is due to update its forecast this week.
Crude has traded in a roughly $6 range since mid-October, caught between competing bullish and bearish factors, including Middle East tensions and expectations for a global glut driven by lagging demand in China.
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