Crude Oil Prices Rise Back Toward 5-Mo High as Market Tightens

Crude oil prices edged up to within touching distance of a five-month high on Monday after strong data from the U.S. housing market and reports of big potential purchases of U.S. crude by China helped ease any near-term fears about the strength of global demand.
By 11:25 AM ET (1525 GMT), U.S. crude futures were up 1.1% at $42.47 a barrel, while the global benchmark Brent was up 0.6% at $45.06 a barrel. Both had responded positively in line other risk assets to figures showing the National Association of Home Builders' housing market's index matching its all-time high in August.
Gasoline RBOB futures meanwhile rose 2.3% to $1.2735 a gallon, near the top of their recent trading range.
That came on the back of a report by Reuters which cited unnamed sources as saying that Chinese buyers were preparing to announce major purchase contracts for U.S. crude in the near future. If borne out, the reports would both give a supportive picture for overall global demand, and reduce the risk of problems in U.S.-China trade relations hitting the global economy as they did in 2019.
However, the comments were taken with a pinch of salt by many, coming at the same time as the two countries called off a potentially embarrassing review of their 'phase 1' trade deal. Official data show Chinese purchases of U.S. oil and LNG lagging far behind promised volumes so far this year.
Other data points over the weekend offered conflicting signs. The Commodity Futures Trading Commission's data on Friday suggested that speculative buying of crude had fallen in the last week, while Baker Hughes weekly rig count fell by another 4 to a fresh multi-year low, suggesting that OPEC-led price war on U.S. shale will have a lasting effect. Oklahoma-based Chaparral Energy (NYSE:CHAP) became the latest U.S. shale company to file for chapter 11 bankruptcy earlier Monday.
"U.S. production is cratering, and there is not a lot of capital around to raise output. The outlook for oil prices is robust," said Phil Flynn, energy market analyst with The Price Futures Group.
The week's highlight is set to be a meeting of technical experts from the OPEC+ grouping, which includes Russia. Experts are due to meet on Wednesday to review their output schedule for the coming months. Indications so far suggest that the group will continue to withhold a total of 7.7 million barrels a day of output from the market, given the still-high risk of demand faltering under the weight of the Covid-19 pandemic.