Oil driven higher by tight supply expectations

3 weeks ago 57

Illustration shows oil, miniatures of oil barrels and U.S. dollar banknote

Oil, miniatures of oil barrels, oil pump jack and U.S. dollar banknote are seen in this illustration taken, June 6, 2023. REUTERS/Dado Ruvic/Illustration/File Photo Acquire Licensing Rights

LONDON, Sept 1 (Reuters) - Oil benchmark Brent hovered above $87 a barrel as crude prices looked set to set to snap a two-week losing streak on Friday, 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, Deputy Prime Minister Alexander Novak said on Thursday.

The Brent crude price has risen about 3% this week while U.S. West Texas Intermediate crude (WTI) has advanced by 5%.

At 1020 GMT Brent crude was up 98 cents, or about 1.1%, at $87.81 a barrel. WTI had risen 95 cents, also about 1.1%, to $84.58.

"We continue to expect 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.

Changes in U.S. inventories are seen a proxy for changes in the global production-consumption balance.

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.

Reporting by Natalie Grover in London and Sudarshan Varadhan in Singapore Editing by David Goodman

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