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Oil rallies on Chinese import boost and Mideast tensions

Crude oil storage tanks are seen from above at the Cushing oil hub, in Cushing, Okla., in this file photo.

NICK OXFORD/REUTERS

Oil prices on Friday closed at their highest level in October on bullish news from strong Chinese oil imports, U.S. President Donald Trump's decision not to certify that Iran is complying with a nuclear agreement and other tensions in the Middle East.

Brent futures gained 92 cents, or 1.6 per cent, to settle at $57.17 a barrel, while U.S. crude rose 85 cents, or 1.7 per cent, to settle at $51.45 per barrel.

That put both contracts at their highest settlements since Sept. 29. For the week, Brent was up almost 3 per cent and U.S. was up over 4 per cent.

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Traders said the oil market pulled back from even higher gains – both contracts were up over 2 per cent – earlier in the day out of relief that Trump did not immediately seek to impose sanction on Iran. Instead, he gave the U.S. Congress 60 days to decide whether to reimpose sanctions.

"The market is relieved that the U.S. is not going to pull out of the Iran nuclear deal today and they will instead kick the can down the road," said Phil Flynn, senior energy analyst at Price Futures Group in Chicago.

Chinese oil imports hit 9 million barrels per day (bpd) in September, data showed. Imports averaged 8.5 million bpd between January and September, solidifying China's position as the world's biggest oil importer.

"We woke up with the strong data from China. That's on the supportive side," said Olivier Jakob, managing director of oil consultancy PetroMatrix.

China's robust imports have been driven by purchases for its strategic petroleum reserves. The nation has spent around $24-billion building its crude reserves since 2015 and now holds around 850 million barrels of oil in inventory, according to the International Energy Agency (IEA).

Unrest in Iraq also underpinned prices.

Tensions between the two, which traders fear could impinge on oil exports from the region, have been building since Iraq's Kurds overwhelmingly backed independence in a Sept. 25 vote.

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Kurdish authorities have sent thousands more troops to the oil region of Kirkuk to confront "threats" from Iraq's central government, the vice president of the autonomous Kurdistan region said.

Despite the bullish signals, analysts warned that the Organization of the Petroleum Exporting Countries needed to extend its agreement to reduce oil output beyond its current March 2018 expiry date in order to clear stocks.

OPEC, with other producers including Russia, has agreed to production cuts of 1.8 million bpd.

"OPEC-led cuts have breathed new life into oil bulls but unless the organization digs deeper, the drawdown in global oil stockpiles will soon fizzle out," broker PVM's Stephen Brennock wrote.

Separately, Saudi Aramco said it was considering shelving plans for an international public offering (IPO) in favor of a private share sale to world sovereign funds and institutional investors, the Financial Times reported, citing people familiar with the matter.

Many oil traders have said the reason OPEC has been compliant with the production cut agreement was because Saudi Arabia wanted the cuts to work to prop up oil prices ahead of the Aramco IPO.

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"If the IPO is not going to happen, some traders may see that as Saudi Arabia's excuse to start increasing production again," Flynn at Price Futures said, noting he, however, thinks Saudi Arabia has a larger mission to get the market in balance.

"(Saudi Arabia) may need oil prices to go even higher if the IPO does not go through," Flynn said.

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