Oil prices rise on expectations of tightening supplies

London — Oil benchmark Brent hovered above $87 a barrel as crude prices looked set to set to snap a two-week losing streak on Friday, buoyed by expectations of tightening supplies.

Saudi Arabia is widely expected to extend a voluntary 1-million barrel per day (bpd) oil production cut into October, prolonging supply curbs engineered by the Opec and allies, known collectively asOpec+, to support prices.

Russia, the world’s second-largest oil exporter, has already agreed with Opec+ partners to cut oil exports, deputy Prime Minister Alexander Novak said on Thursday.

The Brent crude price has risen about 3% this week while US West Texas Intermediate crude (WTI) has advanced by 5%.

At 1020 GMT Brent crude was up 98c, or about 1.1%, at $87.81 a barrel. WTI had risen 95c, also about 1.1%, to $84.58.

“We continue to expect cuts to be extended, with prices above $90/bbl (on a sustained basis) required to draw Opec supply back to market,” National Australia Bank said in a client note on Friday.

But just how tight the market is also depends on demand.

The appetite for oil in the US has been robust, with commercial crude inventories declining in five of the most recent six weeks, according to surveys conducted by the US Energy Information Administration.

Changes in US inventories are seen a proxy for changes in the global production-consumption balance.

Meanwhile, expectations for demand recovery elsewhere are growing.

A downturn in eurozone manufacturing eased last month, suggesting the worst may be over for the bloc’s beleaguered factories, while an unexpected rebound in China offered some hope for export-reliant economies, private surveys showed.

Both Opec and the International Energy Agency are depending on the world’s biggest oil importer, China, to shore up oil demand over the rest of 2023, but the sluggish recovery of the country's economy has investors concerned.

The remainder of this year promises to bring supply shortage, partly owing to reasonably healthy global consumption and partly because of the Saudi determination to provide a high price floor, said Tamas Varga of oil broker PVM.

“Unless the Chinese economy stages a confident revival next year the mood will sour markedly,” he said.

Reuters