By Erwin Seba
HOUSTON (Reuters) -U.S. crude oil prices gained more than $2 a barrel on Thursday, rising for a third month in row, on expectations that cuts by the OPEC+ group of oil producing nations, led by Saudi Arabia, would continue through the end of 2023.
Brent crude futures for October expired up $1, or 1.2%, at $86.86 a barrel. The more active November contract gained $1.59, or 1% at $86.83.
U.S. West Texas Intermediate crude futures (WTI) for October settled at $83.63 a barrel, up $2, or 2.5%.
Six-month U.S. crude oil futures traded as low as $3.83 below crude for front month delivery, the steepest discount since Nov. 17, signalling tight supplies and encouraging inventory draws.
"The crude market is reacting to OPEC production cuts being extended," said Andrew Lipow, president of Lipow Oil Associates. "The cuts could go through the end of the year."
Brent closed about 1.5% higher for August, while WTI gained 2.2%, with both benchmarks posting gains for the third straight month in a row due to signs of tightening supply.
Analysts expect Saudi Arabia to extend a voluntary oil production cut of 1 million barrels per day into October, adding to cuts put in place by the Organization Petroleum Exporting Countries and its allies, or called OPEC+.
"With Brent prices having stalled in the mid-$80s ... the prospect of those Saudi barrels returning to the market any time soon looks slim and the impact is increasingly being felt across the world as commercial stock levels of crude and fuel products continue to drop," said Ole Hansen, a Saxo Bank analyst.
On the supply side, the latest government data showed U.S. crude oil production rose 1.6% in June to 12.844 million bpd, its highest since February 2020, before the COVID-19 pandemic destroyed demand for fuel and other oil products.
Adding to tight supply expectations, however, U.S. crude inventories fell by a larger-than-expected 10.6 million barrels last week, depleted by high exports and refinery runs, government data on Wednesday showed.
U.S. consumer spending increased 0.8% last month, the Commerce Department reported and the S&P 500 rose after U.S. inflation data matched estimates, underscoring expectations the Federal Reserve could pause its monetary tightening.
The U.S. central bank can end its cycle of rate increases if the labor market and economic growth continue to slow at the current gradual pace, Eric Rosengren, the former president of the Boston Fed, said on Wednesday.
Weak Chinese factory data limited further gains, however.
China's manufacturing activity shrank again in August, an official factory survey showed, fuelling concerns about weakness in the world's second-biggest economy.
China's official purchasing managers' index (PMI) rose to 49.7 from 49.3 in July, the National Bureau of Statistics said, but it remained below the 50-point level. A reading above 50 points represents expansion from the previous month.
The U.S. government on Wednesday revised down its gross domestic product growth for the second quarter to 2.1%, from the 2.4% pace reported last month, and data released separately showed private payroll growth slowed significantly in August.