Oil heads for weekly gain as supply cuts balance demand concerns

Oil edged higher on Friday and was on course for a weekly gain, as higher Chinese demand and OPEC+ supply cuts lifted prices, despite expected weakness in the global economy and the prospect for further interest rate hikes. Brent crude gained 48 cents to $76.15 a barrel. U.S. West Texas Intermediate crude rose 59 cents to $71.21. Brent was on track for a weekly gain of 1.9% and WTI was on course for a 1.6% rise. Oil has gained this week on hopes of growing Chinese demand. China’s refinery throughput rose in May to its second-highest total on record and Kuwait Petroleum Corp’s CEO expects Chinese demand to keep climbing during the second half.

Also supporting crude price are the voluntary output cuts implemented in May by the Organisation of the Petroleum Exporting Countries (OPEC) and its allies, plus an additional cut by Saudi Arabia in July. Russian Energy Minister Nikolai Shulginov said it was “realistic” to reach oil prices of around $80 per barrel, Russian state news agencies reported. Shulginov also said Russian oil and gas condensate production is expected to fall by around 20 million tonnes (400,000 barrels per day) this year, reiterating Russia’s expectations. In Iran, crude exports and oil output have hit new highs in 2023 despite U.S. sanctions, according to consultants, shipping data and a source familiar with the matter, adding to global supply when other producers are limiting output.

U.S. oil rigs fell by four to 552 this week, their lowest since April 2022, while gas rigs fell 5 to 130, their lowest since March 2022, energy services firm Baker Hughes Co said. Capping oil price gains was the prospect of rising interest rates, which could slow economic growth. The Bank of England is set to raise interest rates by a quarter of a percentage point next week. The European Central Bank lifted rates to a 22-year high on Thursday and the U.S. Federal Reserve signalled at least a half of a percentage point increase by year-end. Investors have been closely watching interest rates and commentary from Fed members. “We’re going to be going from Fed speaker to Fed speaker, and data point to data point,” Phil Flynn, an analyst at Price Futures Group, said of oil prices.