Oil prices end higher after Powell speech, post second straight weekly loss

Price action

• West Texas Intermediate crude for October delivery
  CL00,
  +0.28%

  CL.1,
  +0.28%

  CLV23,
  +0.28%
  rose 78 cents, or1%, to close at $79.83 a barrel on the New York Mercantile Exchange, posting a weekly decline of 1%.

• October Brent crude
  BRNV23,
  +0.44%,
  the global benchmark, gained $1.12, or 1.3%, to settle at $84.48 on ICE Futures Europe, leaving a 0.4% weekly decline. November Brent
  BRN00,
  +0.42%

  BRNX23,
  +0.42%,
  the most actively traded contract, ended at $83.95 a barrel, up 0.7%.

• Back on Nymex, September gasoline
  RBU23,
  -0.40%
  rose 3.5% to $2.876 a gallon, turning it up 1,9% for the week. September heating oil HOU23 jumped 4.8% to $3.308 a gallon, for a 4.7% rise on the week.

• September natural gas
  NGU23,
  +0.47%
  gained 0.8% to $2.54 per million British thermal units, trimming its weekly fall to 0.4%.

Market drivers

In an eagerly awaited speech at the Kansas City Fed’s annual symposium in Jackson Hole, Wyo., Powell delivered a speech widely described by analysts and economists as “hawkish,” but not as aggressive on the scope for further monetary tightening as some market participants had expected. Powell also set a higher bar for further interest rate increases, economists said, while also warning that inflation remains too high.

MarketWatch Live: Stocks higher in choppy trade after Powell speech at Jackson Hole

The U.S. dollar rallied following Powell’s remarks, with the ICE U.S. Dollar Index
DXY
trading as high as 104.45, its highest since early June, but the dollar’s gains faded, with the index up just 0.1% in afternoon trade.

A stronger dollar makes oil more expensive to users of other commodities.

After a July rally, crude prices have pulled back in August, with the retreat tied in part to concerns over demand out of China, the world’s second-largest oil consumer. Crude has been supported though in part by supply cuts, including Saudi Arabia’s 1 million barrel-a-day reduction that began in July and is set to run at least through September.

“Recent economic data has not been encouraging and central banks are maintaining their hawkish positioning which could compound that pressure further going into the end of the year. But with supply cuts continuing to be extended, particularly the voluntary monthly reductions from Saudi Arabia and Russia, the market is being supported, perhaps in a new higher trading range above $80 in Brent,” said Craig Erlam, senior market analyst at Oanda, in a note.

Prospects of added supply from elsewhere, however, have also contributed to the weaker tone in August.

“Hopes are pinned on Venezuela, Iran and Iraq,” Barbara Lambrecht, commodity strategist at Commerzbank, said in a note.

U.S. officials were drafting a proposal that would ease sanctions on Venezuela’s oil exports if the country moves toward a free and fair presidential election, Reuters reported Wednesday afternoon.

Daily production in Iran has already increased by 350,000 barrels since the spring, Lambrecht noted, with exports recently exceeding 2 million barrels per day.

If survey-based production estimates news services, which are due to be published from the end of next week, confirm that the increased production trend has continued in August, prices are likely to fall further, even if OPEC supply remains at a low level due to Saudi Arabia’s massive production cut, she wrote.

The number of U.S. oil rigs fell this week by 8 to 512, according to oil-field-services firm Baker Hughes. That’s down 93 from a year ago.