Oil prices increased by more than 1% on Friday, breaking a two-week losing trend as supply shortages were anticipated.
The Organisation of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, designed supply cuts to support prices. Saudi Arabia is largely anticipated to extend a voluntary 1 million barrel per day (bpd) oil production cut until October.
According to Deputy Prime Minister Alexander Novak on Thursday, Russia, the second-largest oil exporter in the world, has already decided to reduce oil exports next month with the help of OPEC+ allies.
At 12:09 GMT, Brent crude had increased by $1.01, or around 1.2%, to reach a price of $87.84 per barrel, while WTI had increased by 99 cents, or roughly 1.2%, to reach a $84.62 price.
While WTI has increased by 5% this week, Brent has risen by about 3%.
“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,” the National Australia Bank stated in a client note on Friday.
Demand, however, also determines how constrained the market is.
According to surveys done by the U.S. Energy Information Administration, the demand for oil in the United States has been strong, with commercial crude inventories falling in five of the most recent six weeks.
With expectations of slower growth that would increase the likelihood of a delay in interest rate hikes, attention will also be paid to the August U.S. employment figures due on Friday.
In the meantime, there are rising hopes for a resurgence in demand abroad.
The worst of the crisis facing the euro zone’s struggling factories may have passed last month, according to private assessments, and China’s surprising recovery gave export-dependent nations some reason for optimism.
The world’s energy supply is critical to OPEC and the International Energy Agency.
China, the world’s largest oil importer, is expected to support oil demand for the remainder of 2023, but investors are worried about the slow pace of the country’s economic recovery.
According to Tamas Varga of oil trader PVM, the Saudis’ commitment to maintain a high price floor and reasonably healthy global consumption both point to a supply constraint for the remainder of this year.
Unless the Chinese economy experiences a confident recovery next year, the mood will significantly deteriorate, he said.