Oil improves slightly after big drop earlier in the week

London — Oil prices edged higher on Friday, a day after sinking 5% to a four month-low on growing worries about burgeoning non-Opec supply and cooling demand.

Brent futures rose 80c, or about 1%, to $78.22 a barrel at 10.57am GMT. US West Texas Intermediate crude (WTI) was at $73.66, up 76c, also roughly 1%.

Both benchmarks have lost around a sixth of their value over the last four weeks, and prices are on track for their fourth straight week of losses.

“Oil prices are down slightly this year despite demand exceeding our optimistic expectations,” Goldman Sachs analysts said in a note.

“Noncore Opec supply has been much stronger than expected, partly offset by Opec cuts.”

Prompt monthly spreads for both contracts have flipped to contango, a structure that indicates nearby prices are lower than those in future months, reflecting healthy supply.

Oil’s decline this week was mainly triggered by a steep rise in US crude inventories and production being sustained at record levels, while signs of thawing demand in China also triggered concerns.

But the precipitous drop on Thursday had some analysts questioning whether the sell-off was overdone, particularly in the light of escalating tension in the Middle East that could disrupt oil supplies and the US vowing to enforce sanctions against Hamas-backer Iran.

Another factor contributing to negative sentiment on Thursday was the number of Americans filing new claims for unemployment benefits increasing, and a slight contraction in industrial production figures.

“Poor numbers maybe, but not disastrous; however, it was enough to tip the balance and carnage ensued with sell stops cascading with triggers,” said John Evans of oil broker PVM.

With Brent below $80 a barrel, a barrage of analysts now expect Opec+, principally Saudi Arabia and Russia, to extend their voluntary cuts into 2024.

“It has become clearer that the oil balance for the remainder of this year is not as tight as initially expected,” ING analysts said in a note.

“As things stand, the market is still expected to return to surplus in the first quarter of 2024.” 

Reuters