Oil rises despite OPEC+ output hike plan; supply still tight

Oil rose higher on Friday, supported by expectations that OPEC’s decision to increase production targets by slightly more than planned won’t much affect tight global supply and by rising demand as China eases COVID restrictions. The Organisation of the Petroleum Exporting Countries and allies, known as OPEC+, on Thursday agreed to boost output by 648,000 barrels per day (bpd) a month in July and August rather than 432,000 bpd as previously agreed. Brent crude rose $1.76, or 1.5%, to $119.37 a barrel. U.S. West Texas Intermediate crude advanced $1.70, or 1.3%, to $118.57.

U.S. crude was heading for a sixth weekly gain on tight U.S. supply, which has prompted talk of fuel export curbs or a windfall tax on oil and gas producers. “Yesterday’s OPEC+ decision and the ongoing acceleration in SPR releases is maintaining crude availability at an ample level especially with demand from the refiners appreciably downsized from a few years ago,” said Jim Ritterbusch, president of Ritterbusch and Associates LLC in Galena, Illinois. The output hike could undershoot the pledged amount since OPEC+ divided the hike across its members and still included Russia, whose output is falling as sanctions have prompted some countries to avoid buying its oil since the invasion of Ukraine. “OPEC+ is still likely to supply considerably less oil to the market than agreed and thus not bring the relief that had been hoped,” said Commerzbank analyst Carsten Fritsch.

Supplies remain tight. On Thursday, a U.S. weekly inventory report showed crude stockpiles fell by a more-than-expected 5.1 million barrels. Gasoline inventories also dropped. Demand is rising too. China’s financial hub Shanghai and capital, Beijing, have relaxed COVID-19 restrictions and the Chinese government has vowed to stimulate the economy. Oil held gains after U.S. data showed employment increased more than expected in May, signs of a tight labor market.