Oil up nearly $3/bbl on faded chances concerning supply boost

Oil prices rose nearly $3 a barrel on Friday as attention turned to next week’s OPEC+ meeting and dimming expectations that the producer group will boost supply.

Brent crude futures for September settlement, due to expire on Friday, gained $2.79, or 2.6%, to trade at $109.93 a barrel by 12:10 p.m. EDT (1710 GMT) after touching their highest since July 5. The more active October contract was up $2.25, or 2.2%,at $104.11.

The oil market in Europe is considerably tighter than in the U.S., which is also reflected in the sharply falling Brent forward curve. Investors will watch the next meeting of the August 3 meeting of OPEC+.

OPEC+ sources said the group will consider keeping oil output unchanged for September, with two saying a modest increase would be discussed.

A decision not to raise output would disappoint the United States after President Joe Biden visited Saudi Arabia this month hoping for a deal to open the taps.

It would be difficult for OPEC+ to boost supply, given that many producers are already struggling to meet production quotas. OPEC+ compliance with oil output cut pledges reached 320% in June, Russian Interfax news agency reported, citing a source familiar with the data. It said the group’s combined oil underproduction was 2.84 million barrels per day last month.

WTI crude futures rose $2.79, or 3%, to $99.21 a barrel. Oil pared some gains after the release of data from oil services firm Baker Hughes, which showed that U.S. drillers added crude rigs for a record 23 months in a row, indicating more supply ahead.

The number of rigs drilling for gas in the United States rose by 2 to 157 in the week to Jul 29, while oil-directed drilling rigs rose by 6 to 605, the Baker Hughes data showed. Both contracts were set for a weekly rise but also on track for a second monthly loss, with Brent down 4% for July and WTI down 6%.

Stronger stock markets supported oil on Friday, as did a weaker dollar, which makes oil cheaper for buyers with other currencies.

These days, there has been a lot of macro influences on the oil market with the stock market making a nice rebound and a similar fall in the dollar feeding into today’s prices.

Front-month Brent futures are selling at a rising premium to later-loading months, a market structure known as backwardation, indicating tight current supply levels.