Crude oil in bull market caps biggest weekly gain since March

. Shown, a worker waiting to connect a drill bit on Endeavor Energy Resources’ Big Dog Drilling Rig 22 last month nearREDIT: Bloomberg News photo by Brittany Sowacke).

Oil capped its strongest weekly increase in five months after entering a bull market as investors weighed speculation that OPEC talks next month could lead to an output freeze, and U.S. inventories dropped.

Futures rose 0.6 percent in New York. While OPEC is unlikely to reach a deal to freeze production, its plans to hold informal talks in Algiers next month “were the spark” behind oil’s rally, according to Morgan Stanley. U.S. crude inventories dropped the most in five weeks through Aug. 12, while fuel stockpiles slid a third week, Energy Information Administration data showed Wednesday.

Oil has climbed more than 20 percent since it dipped below $40 a barrel earlier in the month, meeting the common definition of a bull market. Russian Energy Minister Alexander Novak said that the nation was open to discussing a freeze after his Saudi counterpart Khalid Al-Falih said that informal talks in September may lead to action to stabilize the market. While money managers increased wagers on rising oil prices by the most since January during the week ended Aug. 9, bearish bets on crude remained at record-high levels, according to the Commodity Futures Trading Commission.

“It’s kind of a perfect storm that has rallied this market, but on the other hand it has nothing to do with fundamentals,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “It’s really a short-covering rally that’s been fueled by OPEC rumors.”

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West Texas Intermediate for September delivery advanced 30 cents to settle at $48.52 a barrel on the New York Mercantile Exchange. The contract gained 9.1 percent this week, the most since March. Total volume traded was in line with the 100-day average.

Brent for October settlement slipped 1 cent to close at $50.88 a barrel on the London-based ICE Futures Europe exchange. The contract advanced $1.04 to close at $50.89 on Thursday, also entering a bull market after climbing more than 20 percent from its early-August low. The global benchmark crude settled at a $1.77 premium to WTI for October.

U.S. oil drillers added 10 rigs this week, extending the biggest and longest increases since April 2014, Baker Hughes Inc. data show. Technical analysis shows the relative strength index, or RSI, for WTI is approaching the 70-point threshold that shows prices have risen too quickly. The dollar rebounded after its longest slump since April. A stronger dollar weakens investor appetite for commodities.

“One has to be impressed that the dollar’s recovery is strong and it’s impacting commodities like gold, but oil is fine,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “The momentum is still very bullish.”

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An agreement to freeze output is within reach as Saudi Arabia, Iran and non-OPEC member Russia are producing at, or close to, maximum capacity, Chakib Khelil, former OPEC president and Algerian energy minister, said in a Bloomberg Television interview on Aug. 17. Iranian Oil Minister Bijan Namdar Zanganeh hasn’t decided yet whether to participate in the talks in Algiers next month, a spokesman said on Aug. 16. Iran’s refusal to join the April talks in Doha ultimately prompted the Saudis to block a deal.

“After Doha you can never say never, but I think a lot of people see this deal coming through,” said Flynn.

In other oil-market news, a glut of crude oil stored in ships on the North Sea is starting to dissipate, with demand increasing as traders take advantage of remaining discounts before maintenance begins at Britain’s largest oil field.

Saudi Arabia raised its combined crude oil and refined-product exports to 8.83 million barrels a day in June, the highest on record for that month, according to data from the Joint Organisations Data Initiative.

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Exxon Mobil, Chevron and Hess have agreed to bid together for rights to drill for crude in Mexico’s deepwater oil areas, according to a person with direct knowledge of the plans.

U.S. crude stockpiles dropped by 2.5 million barrels last week to 521.1 million, according to data from the EIA.

– With assistance from Grant Smith