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Oil up for 3rd straight day as producers look to rein in output

Oil futures moved higher on Thursday, settling at a nearly one-month high, finding continued support from an unexpected weekly decline in U.S. crude supplies as global producers looked to rein in output.

Traders, however, continued to wrestle with the outlook for crude demand amid slack in the global economy, limiting gains for oil.

“The catalyst to this week’s positive sentiment is the Energy Information [Administration] report that shows that total petroleum stocks in the U.S. have declined by 21 million barrels in the last three weeks,” said Manish Raj, chief financial officer at Velandera Energy.

The EIA on Wednesday reported that U.S. crude supplies fell for the first time in six weeks, down 1.7 million barrels for the week ended Oct. 18. Separately, supplies of oil from the U.S. Strategic Petroleum Reserve, or SPR, fell by 1 million barrels for the week. Petroleum products gasoline and distillate also saw declines in stockpiles.

On Thursday, December West Texas Intermediate crude CLZ19, -0.62% rose 26 cents, or 0.5%, to settle at $56.23 a barrel on the New York Mercantile Exchange, after jumping 2.7% on Wednesday. The close was the highest for a front-month contract since Sept. 26.

Global benchmark Brent crude for December BRNZ19, -0.58%, meanwhile, added 50 cents, or 0.8%, to close at $61.67 a barrel on the ICE Futures Europe exchange — its highest finish since Sept. 27.

Both WTI and Brent crude benchmarks finished Wednesday at their highest in roughly a month.

“There is a realization that the price decline seen in the last three weeks was perhaps an overshoot, since the ground realities point to tightening supplies and steady demand,” Raj told MarketWatch.

Saudi Arabia is “adamant that all [Organization of the Petroleum Exporting Countries] members meet their commitment to cut production before they will entertain the idea of additional cuts in December,” he said. “This has put focus on Iraq and Nigeria, two of the most non-compliant OPEC producers, to meet their share of production cut obligations. There is a clear indication that both of these non-compliant producers have reduced their production to be compliant in October.”

In the U.S., the “dismal state” of oil-field service companies, as confirmed by the record loss reported by Schlumberger Ltd. SLB, -0.62% and bankruptcy filing of Weatherford International Ltd. earlier this year, “suggests that shale drillers have finally pushed [the] brake on their drilling machines,” said Raj. “As U.S. production growth stalls, prices find support at higher levels.”

Still, concerns over global economic growth, and energy demand, remain, with U.S. durable goods orders down 1.1% in September, marking the first decline in three months.

The IHS Markit flash German manufacturing PMI inched up to 41.9 in October from September’s decade-worst 41.7, which is still a reading that shows the factory segment of the country’s economy in dire straits. Readings below 50 indicate contraction.

As expected, the European Central Bank left its main deposit facility rate at negative 0.5% and its main lending rate at 0%. The rate-setting Governing Council repeated that it expects to keep rates at “present or lower levels” until inflation, which has remained stubbornly low, “robustly” converges with its target of near but just below 2%. It also reiterated that it will begin a controversial bond-buying program at a pace of 20 billion euros a month beginning in November.

Back on Nymex, petroleum-product prices also climbed, with November gasolineRBX19, -0.47% up 0.7% to end at $1.6632 a gallon and November heating oilHOX19, -0.35%  rising 1.1% to close at $1.9863 a gallon.

November natural gas NGX19, +0.47%  settled at $2.316 per million British thermal units, up 1.5%.

The EIA reported Thursday that domestic supplies of natural gas rose by 87 billion cubic feet for the week ended Oct. 18. That was a bit lower than the average build of 92 billion cubic feet expected by analysts polled by S&P Global Platts.

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