Oil held its biggest gain in almost seven weeks after improved U.S. and Chinese economic data aided the demand outlook and Saudi Aramco said it would go ahead with its long-awaited initial public offering.
Futures edged lower in New York after jumping 3.7% Friday, the most since the September attacks on Saudi Arabia’s oil facilities. Chinese manufacturing orders rose the fastest in more than six years, according to data released Friday, and U.S. hiring was unexpectedly resilient. Aramco, the world’s biggest oil company, announced its intention to list on Sunday, more than three years after Crown Prince Mohammed bin Salman first raised the idea.
The oil market is taking heart from the signs of strength in the world’s two biggest economies as the nations move closer to a partial trade deal, despite skepticism over whether a more comprehensive agreement can be reached. Hedge funds unwound bets against American crude for the first time in six weeks, but short wagers remain almost triple what they were in mid-September, according to data released Friday.
There’s been some early profit-taking, Jeffrey Halley, a senior market analyst at OANDA in Singapore, said in a note. Friday’s mega-rally “was built on a combination of not as bad as feared data and optimism on a trade deal that really, only keeps the lights on,” he said.
West Texas Intermediate for December delivery dropped 10 cents, or 0.2%, to $56.10 a barrel on the New York Mercantile Exchange as of 7:42 a.m. in London. It was down as much as 0.7% earlier. The contract jumped $2.02 to close at $56.20 on Friday, falling 0.8% for the week.
Brent for January settlement lost 8 cents to $61.61 a barrel on the London-based ICE Futures Europe Exchange. The global benchmark crude traded at a $5.41 premium to WTI for the same month.
Given the amount of crude supply, the market would seem more balanced with WTI in the $50 to $52 a barrel range and Brent at $58 to $60, OANDA’s Halley said in an interview.
Saudi Arabia is pulling out all the stops to ensure the success of Aramco’s initial public offering. The kingdom cut taxes on the company for a third time, revealed incentives for investors not to sell and may boost dividends further. Yet the Saudi government has already conceded the company probably isn’t worth the $2 trillion valuation Prince Mohammed has long advocated.
U.S. Commerce Secretary Wilbur Ross said Sunday in Bangkok that the U.S. and China would likely reach a “phase one” trade agreement this month. Further phases of the deal would depend on things involving legislation on the part of China and an enforcement mechanism, he said.
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