Oil heads for third week of gains as output stumbles

© Reuters. FILE PHOTO: A worker collects a crude oil sample at an oil well operated by Venezuela's state oil company PDVSA in Morichal, Venezuela, July 28, 2011. REUTERS/Carlos Garcia Rawlins/File Photo

By Ron Bousso

LONDON (Reuters) -Oil prices steadied on Friday near a two-month high of $77.50 a barrel and were headed for a third straight week of gains, supported by global output disruptions and inventory draws.

The rally was slightly dampened by China's first public sale of state crude reserves.

Brent crude was up 222 cents, or 0.28%, at $77.47 a barrel by 0743 GMT, their highest since July 6, and close to their highest since October 2018.

U.S. oil was up 7 cents, or 0.1%, at $73.37 a barrel, having closed 1.5% in the previous session, the highest since the start of August.

Oil prices have been supported in recent weeks by major disruptions in U.S. Gulf Coast production following Hurricane Ida and other storms, disruptions which could last for months in some cases, that have led to sharp draws in U.S. and global inventories. [EIA/S]

U.S. oil refiners on the hunt for replacements for the Gulf crude have turned to Iraqi and Canadian oil, analysts and traders said.

Some members of the Organization of the Petroleum Exporting Countries (OPEC) and allies, known as OPEC+, have also struggled to raise output following under-investment or delays to maintenance work during the pandemic that began last year.

Brent oil prices could hit $80 a barrel by the end of September due to stock draws, lower OPEC production and stronger demand in the Middle East, analysts at UBS said in a note.

"What still might allow Brent to hit that mark over the coming weeks is the ongoing drop in oil inventories driven by unplanned supply disruptions."

The gains were nevertheless capped by China's first public sale of state oil reserves.

State-owned PetroChina and private refiner and chemical producer Hengli Petrochemical bought four cargoes totalling about 4.43 million barrels, sources with direct knowledge of the auction said.

WoodMac analysts said just before the auction that it would have little impact on the market due to the size of the sale relative to China's consumption and imports.