Oil Rises Again as Traders Embrace "Minor Supportive Headlines"

Some analysts think further inventory drawdowns - and higher prices - are coming: File Image/PixaBay

The perception of weak demand that has dogged crude trading of late is either losing credibility or being eclipsed by more positive news, if Thursday's trading activity is any indication: although analysts still cited global economies as a concern, oil rose for the third straight session this week, with Brent topping $61 per barrel.

Brent ended Thursday's session up 50 cents at $61.67 per barrel, and West Texas Intermediate settled 26 cents higher at $56.23.

Some analysts considered the gains to be an exception to the rule: Jim Ritterbusch, president of Ritterbusch and Associates, stated in a note, "We feel that even minor supportive headlines on the trade front or geopolitical developments could prompt an exaggerated price response in a market in which net speculative WTI length had dropped into the red zone."

He was referring to a new round of talks aimed at resolving a bitter trade war between China and the U.S., as well as news earlier this week that the Organization of the Petroleum Exporting Countries (OPEC) may deepen their supply cuts in order to maintain a healthy global crude supply versus demand ratio.

These factors plus a surprise drop in U.S. stockpiles earlier this week were said to have positively influenced Thursday's trading session, and more gains could soon come if stocks fall further, which Carsten Fritsch, analyst at Commerzbank, thinks may be the case: "The seasonal weakness in crude oil processing now appears to have come to an end, and processing should increase again."

Bob Yawger, director of the futures division at Mizuho Securities USA, agreed: "The tone has changed a bit here, especially that to a certain degree, we are exiting turnaround season and that maintenance may have already hit its low point.

"That means you're going to start seeing some more draws here."

Worthy of note is that traders seemed to ignore news of South Korea's economy growing at a slower pace in the third quarter, which came on the heels of China reporting a slump in the pace of economic growth to the lowest since the early 1990s.

Abhishek Deshpande, head of global oil market research and strategy and JPMorgan, summarized the current state of the crude market by telling Bloomberg television that although fundamentals won't change significantly next year, there could be a short term rally in the next six to eight months.