Oil prices rose to the highest level in the last 7 months on Friday due to supply concerns and ended the two-week slump amid expectations of tighter supply.
Saudi Arabia is expected to voluntarily extend its 1 million bpd oil production cut through October, by extending supply cuts designed by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, to support prices.
Russia, the world’s second-largest oil exporter, has reached an agreement with its OPEC+ partners to cut oil exports next month, Deputy Prime Minister Alexander Novak said on Thursday.
Brent crude rose $1.66, or 1.9%, to $88.49 a barrel. It hit $88.75 a barrel, the highest level since Jan. 27, which was previously a session high.
West Texas Intermediate crude (WTI) rose $1.39, or about 1.7%, to $85.02. It previously rose to $85.81, its highest level since November 16.
Brent is up nearly 4.8% this week, the biggest increase in a week since the end of July. WTI posted its biggest weekly gain since March, up 7.2% for the week.
While the economic problems are on the agenda, there are signs that demand is close to record levels. The market has to face the fact that the supply is below average.
The appetite for oil remains strong in the United States, with commercial crude inventories falling for five of the last six weeks, according to surveys conducted by the U.S. Energy Information Administration (EIA).
The US report released on Friday, which was watched with interest, also showed an increase in the unemployment rate and a slowdown in wage increases; This strengthens expectations for a pause in interest rate hikes.
Meanwhile, expectations for a recovery in global demand are rising.
Private surveys pointed out that the decline in the euro area’s manufacturing sector may have eased last month, while the unexpected recovery in China offered some hope for export-dependent economies.
Both OPEC and the International Energy Agency (IEA) rely on China, the world’s largest oil importer, to support oil demand for the remainder of 2023, but the slow recovery in the country’s economy worries investors. If the Chinese economy does not show a confident recovery next year, the mood of the market will deteriorate significantly.
The rest of this year can be expected to be a supply shortage, partly due to healthy global consumption and partly to the Saudi commitment to maintaining a high price floor.
As an indicator of future supply, energy services company Baker Hughes said oil rigs in the US have remained unchanged at 512 this week, the lowest level since February 2022.
