Brent Crude Set for Longest-Ever Rally on OPEC, Economic Outlook

Oil rose for a 10th consecutive day in London, heading for its longest run of gains on record, as OPEC cutbacks reined in supply while reassurance from the Federal Reserve buoyed the outlook for demand.

Futures returned to a bull market this week after recovering about 20 percent from the lows reached in December, as Saudi Arabia gave assurances on Wednesday that the production cuts by OPEC and its partners starting this month will be deep enough to prevent any surplus. Nonetheless, Brent crude remains 28 percent below the four-year high it hit in October as U.S. shale output continues to surge and China’s economy shows signs of slowing.

“The mood brightens, and the market realizes that the world economy and oil demand are not grinding to a halt,” said Norbert Ruecker, head of macro and commodity research at Julius Baer Group Ltd. in Zurich. “Moreover, there is confidence that the petro-nations will cut supplies as promised to balance the market.”

Brent for March settlement rose 21 cents to $61.89 a barrel on the ICE Futures Europe Exchange at 11:48 a.m. in London. It’s on track for an 8.5 percent increase this week after gaining 9.3 percent, the most in two years, the previous week. Ten consecutive daily gains would mark the longest rally since the contract started trading in 1988. The global benchmark crude traded at a premium of $8.67 a barrel to West Texas Intermediate for the same month.

WTI for February delivery advanced 32 cents to $52.91 a barrel on the New York Mercantile Exchange. The U.S. crude has also advanced for a 10th day, its longest run of daily gains since 2010, and has added 10 percent this week, the most since December 2016.

Trade Talks

Crude’s direction in the coming weeks may be determined by whether the Organization of Petroleum Exporting Countries, and allies including Russia, implement output cuts they have promised for the first six months of 2019. Also crucial will be the outcome of trade negotiations between the U.S. and China — the world’s two biggest economies. A deal between the nations could boost flagging global growth that underpins oil demand.

Saudi Arabian Energy Minister Khalid Al-Falih said on Wednesday that the cut of 1.2 million barrels a day agreed by the OPEC+ coalition will be sufficient to balance markets, and that the group is prepared for further action if it proves inadequate.

“Sentiment in the oil market has turned around this week,” said Jens Naervig Pedersen, senior analyst at Danske Bank A/S in Copenhagen. The reversal “is on the back of a combination of OPEC+ production cuts taking effect, a stabilization in risk sentiment in equity markets and a weaker dollar. In addition, the oil market will be monitoring trade talks, which seem to progress slowly.”

Uncertainty Persists

While recent progress seen in U.S.-China talks has lifted investor sentiment, global financial markets are still struggling to decipher what exactly may have been promised in their negotiations this week.

China’s Ministry of Commerce said Thursday that the talks between the two sides were “extensive, in-depth and detailed” and laid the foundation for a resolution. Chinese Vice Premier Liu He is likely to travel to the U.S. later this month to meet with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.

Meanwhile, dovish commentary by the Fed’s chairman Jerome Powell and his deputy Richard Clarida has added to positive investor sentiment. They said that the central bank will be especially cautious about pushing ahead with interest-rate increases after raising them four times last year.

Other oil-market news: The  Cboe/Nymex Oil Volatility Index slumped 18 percent through Thursday, set for the biggest weekly loss since the week ended Dec. 7. WTI rose above its 50-day moving average, at $52.67, for the first time since Oct. 17. Brent broke above the same marker on Thursday for the first time since Oct. 23.  Goldman Sachs Group Inc. is standing firm with its bullish bet on commodities even after being  “hoodwinked” by a shift in investor sentiment that pummeled prices late last year.The gasoline market is expected to pivot into a deficit toward the end of next year as refiners focus on distillates production, it said in a note.