Crude oil prices were set for yet another weekly gain after Saudi Arabia said it would extend its voluntary production cuts of 1 million bpd into September.
The Kingdom added fuel to the rally by suggesting it could extend them beyond September, too, or deepen the cuts, or combined both an extension and deeper cuts.
Prices got an additional boost this week from the American Petroleum Institute and the Energy Information Administration, which both estimated the most significant drawdown in U.S. oil inventories in years for the last week of July.
The API pegged the draw at 15.4 million barrels while the EIA estimated inventories had shed 17 million barrels.
Despite this massive draw, oil prices actually declined in the middle of the week, after Fitch Ratings downgraded the United States’ credit rating from AAA to AA+. They then began to rebound as supply concerns took the upper hand over the prospects of the U.S. economy.
At the same time, the dollar is up as well, weighing on oil prices along with the possibility of further rate hikes from the Fed.
"A strong dollar has weighed on crude prices and everyone wants to know if a hot labor market will force the Fed to tighten policy even further," OANDA’s Edward Moya told Reuters.
Bloomberg, meanwhile, noted that fear of a recession in the U.S. has subsided, lending support to oil prices, despite the prospect of more rate hikes from the Fed if the labor market remains tight.
Goldman Sachs reported that oil demand had hit a peak in July and upgraded its forecast for demand going forward, creating a deficit of 1.8 million bpd in the second half of the year.
Meanwhile, preliminary OPEC production figures suggest the combined output of the bloc fell by some 900,000 barrels daily in July thanks to the Saudi cuts, even though their effect was tempered by members where production rose moderately.
By Irina Slav for Oilprice.com