LONDON – Oil prices jumped a dollar on Thursday, extending a strong rally from Wednesday when U.S. crude oil inventories fell and Saudi Arabia signaled that prices had come down far enough.
Price gains were driven by strong rise on gas oil as traders looked ahead to potential strong demand in the fourth quarter at the outset of the northern hemisphere winter.
"The name of the game is yesterday's news, and the strength in the products, both in Europe and in the States. It is more of a gas oil and heating oil led market," said a London trader.
U.S. light crude jumped $1.05 to $38.10 a barrel on the New York Mercantile Exchange (search), on the heels of a near 4 percent rise on Wednesday. London Brent was up $1.05 at $35.52 a barrel.
The renewed price rise has abruptly stemmed a month long slide that took oil prices down around $6 or 15 percent from 21-year highs struck in early June.
Saudi Arabia, the world's biggest oil exporter raised supply to about 9.1 million barrels a day (bpd) in June, well above its formal OPEC (search) quota, to cool high prices.
Saudi Oil Minister Ali al-Naimi (search) said on Wednesday that prices were now fair and did not see any reason to change current output levels.
Naimi said OPEC would decide at a scheduled cartel meeting on July 21 whether to make a scheduled 500,000 barrels a day increase in formal quotas from August 1.
OPEC has already raised its formal production target to 25.5 million bpd but is pumping well above that level to meet strong demand growth in Asia and the United States.
Nigeria's top oil official said on Thursday he wants oil prices to stay in the mid-$30 a barrel area, and believes OPEC producers should beware of releasing too much supply at current prices.
"Between $30 and up to mid-$30s would seem to be a good balance. Beyond the mid-$30s, approaching $40 everybody gets nervous, even OPEC producers," Nigeria's Presidential Adviser on Petroleum Edmund Daukoru told Reuters in an interview.
The extra OPEC output has dampened prices by building supplies on international markets, but an unexpected fall in U.S. crude stocks is keeping supply worries bubbling.
The U.S. Energy Information Administration reported on Wednesday that crude inventories fell 500,000 barrels to 304.9 million barrels in the week to June 25, bucking market expectations of a 2 million barrel increase.