LONDON – Oil prices jumped by more than 1% on Friday and were on track to snap a two-week losing streak, bouyed 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 Organization of the Petroleum Exporting Countries (OPEC) and allies, known collectively as OPEC+, to support prices.
Russia, the world’s second-largest oil exporter, has already agreed with OPEC+ partners to cut oil exports next month, Deputy Prime Minister Alexander Novak said on Thursday.
At 1209 GMT Brent crude was up $1.01, or about 1.2%, at $87.84 a barrel while U.S. West Texas Intermediate crude (WTI) had risen 99 cents, also about 1.2%, to $84.62.
Brent is up about 3% this week while WTI has advanced by 5%.
“We continue to expect (supply) cuts to be extended, with prices above US$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 United States has been robust, with commercial crude inventories declining in five of the most recent six weeks, according to surveys conducted by the U.S. Energy Information Administration.
Eyes will also be on August U.S. job numbers due on Friday, with expectations of slower growth that would improve the chances of a pause to interest rate hikes.
Meanwhile, expectations for demand recovery elsewhere are growing.
A downturn in euro zone 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.