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Sept. 30, 2021, 3:12 p.m. EDT

Oil futures finish higher, with U.S. prices up a sixth quarter in a row

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By Myra P. Saefong and Mark DeCambre

Oil futures finished higher Thursday, contributing to a sixth straight quarterly climb for U.S. benchmark prices, as traders bet on higher crude demand after a report said China told state-owned energy companies to build their reserves to meet power needs for the winter.

China told top state-owned energy companies to secure winter supplies at all costs, with the order coming directly from Vice Premier Han Zheng during a meeting earlier this week with officials from Beijing’s state-owned assets regulator and economic planning agency, Bloomberg reported.

“This could be a game changer for crude oil,” said Phil Flynn, senior market analyst at The Price Futures Group.

U.S. benchmark crude oil prices had been pressured by a bounce back in domestic production to more than 11 million barrels a day last week, he said. Forecasts for a warmer October than typical in the past also took the heat off the tight supply situation, he said.

Now, “China is realizing that this energy crisis could impact all parts of the economy because of coal shortages,” said Flynn. China has suffered from power blackouts due, in part, to high prices and shortages of coal and natural gas.

“They have to use alternative sources of energy to keep the lights on,” Flynn said. “Forced switching of energy sources from coal is going to require more oil” and, because of the coal and natural-gas shortage, demand for oil will increase.

“The U.S. may be a beneficiary as they are a discount to the rest of the global market,” he added.

November West Texas Intermediate crude  rose 20 cents, or 0.3%, to settle at $75.03 a barrel on the New York Mercantile Exchange after trading as low as $73.14.

Global benchmark November Brent crude , however, lost 12 cents, or nearly 0.2%, at $78.52 a barrel on the ICE Futures Europe exchange. The contract expired at the end of Thursday’s session. The most-active December Brent contract tacked on 22 cents, or 0.3%, to $78.31 a barrel.

For the month, WTI gained 9.5%, while Brent saw a rise of 7.6%, based on the front-month contracts, according to Dow Jones Market Data. For the quarter, WTI climbed of 2.1%, up a sixth consecutive quarter, while Brent marked a 4.5% advance.

Oil prices had been trading lower before the Bloomberg report, as Energy Information Administration data Wednesday revealed a weekly rise of 4.6 million barrels in U.S. crude inventories after seven consecutive weeks of declines on the back of storm disruptions in the Gulf of Mexico.

Despite the supply build, “the overall trend of massive draws over the past weeks has still left U.S. storage levels low enough that there is still an overarching bullish sentiment when it comes to U.S. onshore crude stockpiles,” said Louise Dickson, senior oil markets analyst at Rystad Energy, in Thursday commentary.

Also on Nymex, October gasoline rose 1.1% to $2.254 a gallon, but front-month prices were down 1.3% for the month, and logged an increase of 0.4% for the quarter. October heating oil added 1.5% to $2.342 a gallon, ending 9.9% higher for the month, up 10% for the quarter. The October contracts expired at the end of the session.

In the past, power shortages related to insufficient coal supplies led to purchases of oil, said Michael Lynch, president of Strategic Energy & Economic Research, referring to the shortages in China. He pointed out, however, that the Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, can “easily” raise oil production.

OPEC+ will meet Monday to discuss plans for global production in the recovery from the pandemic.

Read: Why OPEC+ is likely to keep its plan to boost oil output

The group has been widely expected to keep current plans to raise overall production by 400,000 barrels a day each month in place, but Reuters reported Thursday that OPEC+ is considering adding even more oil to the global market.

There are some signs that the global economic recovery could see some challenges, which could factor into OPEC’s thinking. There are growing signs that China, the world’s second-largest economy, and one of crude’s biggest importers, is seeing business activity decelerate. China’s manufacturing purchasing managers index fell to 49.6 in September, the National Bureau of Statistics in Beijing said Thursday.

Rounding out action on Nymex, prices for natural gas extended earlier gains the U.S. Energy Information Administration reported that domestic supplies of natural gas rose by 88 billion cubic feet for the week ended Sept. 24.

That was nearly the same as the average increase of 87 billion cubic feet forecast by analysts polled by S&P Global Platts.

November natural gas rose 7.1%, to $5.867 per million British thermal units — another finish at the highest since February 2014. Prices ended 34% higher for the month, for a quarterly rise of nearly 61%.

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