Oil near two-month high as producers set to meet again

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Oil was flat near two-month highs on Monday, putting July on track to become the strongest month so far this year, as news of a producers’ meeting next week added to bullish sentiment driven by the threat of US sanctions against OPEC-member Venezuela.

Investors also eyed a tightening US market after heavy inventory falls and slower new oil rig additions last week.

“Sentiment in the oil market became very bullish after OPEC said it will meet with partners in Abu Dhabi next week to discuss compliance,” said Frank Schallenberger, head of commodity research at LBBW.

Some OPEC and non-OPEC members will meet on August 7-8 in Abu Dhabi to assess how the group can increase compliance with production cuts that began on January 1.

Benchmark Brent crude traded at $52.47 a barrel at 1332 GMT, down 5 cents from Friday’s close. Brent earlier hit $52.92 a barrel, its highest since May 25.

US light crude oil traded briefly above $50 per barrel for the first time in two months before easing back to around $49.53 a barrel.

Hedge funds and money managers have raised bullish bets on US crude oil to their highest in three months, U.S. data showed.

The United States is considering imposing sanctions on Venezuela’s oil sector in response to Sunday’s election of a constitutional super-body, which Washington has denounced as a “sham” vote.

In Europe, a production outage at Shell’s 404,000 barrel-per-day Pernis refinery in the Netherlands following a fire sent benchmark European diesel margins, which reflect the profit made from refining crude oil into the road fuel, to their highest since November 2015 at $14.60 a barrel.

US output

US production has hampered efforts to rebalance the market but signs the market is tightening have emerged.

“Strong increases in the price of oil ... (were) fuelled in large part by the substantial drawdowns in US inventories over the past several weeks,” said William O’Loughlin, analyst at Rivkin Securities.

US crude inventories have fallen by 10 percent from their March peaks to 483.4 million barrels.

US output dipped by 0.2 percent to 9.41 million barrels per day (bpd) in the week to July 21, after rising by more than 10 percent since mid-2016.

Drilling for new US production is also slowing, with just 10 rigs added in July, the fewest since May 2016.