Oil prices up three per cent to nine-week high on supply concerns
Oil prices climbed about three per cent to a nine-week high on Friday as supply concerns and technical buying outweighed fears that further interest rate hikes could slow economic growth and reduce demand for oil.
Brent futures rose $1.95, or 2.6 per cent, to settle at $78.47 a barrel, while U.S. West Texas Intermediate crude (WTI) rose $2.06, or 2.9 per cent, to settle at $73.86.
That was the highest close for Brent since May 1 and WTI since May 24. Both benchmarks ended up about five per cent for the week.
After two months of price consolidation between roughly $73-77, Brent moved into technically overbought territory for the first time since mid April.
“The rally over the last week or so … has been quite strong and backed by momentum – as well as fresh cuts from Saudi Arabia and Russia,” said Craig Erlam, a senior market analyst at OANDA.
Top oil exporters Saudi Arabia and Russia announced fresh output cuts this week bringing total reductions by OPEC+, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, to around 5m barrels per day (bpd), or about five per cent of global oil demand.
“OPEC+ production cuts are expected to tighten the market, driving supply deficits in the second half of 2023, supporting higher oil prices,” analysts at U.S. financial services company Morningstar said in a note.
OPEC will likely maintain an upbeat view on oil demand growth for next year, sources close to OPEC said.
Russia’s latest pledge to reduce oil exports will not require a similar cut in production, a government source told Reuters.
Oil analytics firm Vortexa said there are currently 10.5m barrels of Saudi crude in floating storage off the Egyptian Red Sea port of Ain Sukhna, down by almost half from mid-June.
Also supporting crude prices, the U.S. dollar fell to a two-week low after data showed U.S. job growth was lower than expected but still strong enough to likely lead the U.S. Federal Reserve (Fed) to resume raising interest rates later this month as it has signaled.
A weaker dollar makes crude cheaper for holders of other currencies, which could boost oil demand.
According to the CME Group Inc’s FedWatch Tool, the probability that the Fed increases interest rates by 25 basis points at its July 25-26 meeting is now around 95 per cent, up from 92 per cent just prior to the data coming out.
Higher borrowing costs could slow economic growth and reduce oil demand.
In Europe, decades-high inflation and the impact of war in Ukraine has forced companies to impose hiring freezes and lay-offs.
In Germany, a swift economic recovery appeared less likely as data showed a surprise fall in industrial production.
Reuters – Shadia Nasralla and Sudarshan Varadhan