Oil posted a third weekly gain after Opec+ and its allies surprised the market last weekend with production cuts and US inventories dropped.
Brent, the benchmark for two thirds of the world’s oil, closed 0.15 per cent higher at $85.12 a barrel on Thursday, while West Texas Intermediate, the gauge that tracks US crude, was up 0.11 per cent at $80.70 a barrel.
Oil markets are closed on Friday because of the Good Friday public holiday.
Both benchmarks jumped more than 6 per cent this week after Opec+ members Saudi Arabia, the UAE, Iraq, Kuwait, Oman and Algeria announced that they would introduce voluntary oil production cuts of 1.16 million barrels per day from May until the end of this year.
The precautionary measure is aimed at supporting the stability of the oil market, they said last Sunday.
Russia has also said the 500,000 bpd cut it is implementing from March to June would continue until the end of the year.
The latest move by Opec+ is in addition to the 2 million bpd production cut introduced by the group in October.
US crude inventories, an indicator of fuel demand, meanwhile, dropped by 3.7 million barrels last week, supporting oil prices. Petrol and distillate stockpiles were also lower while oil production was flat.
“Energy traders digested a round of US data that suggests the world’s largest economy is headed towards a recession, but then had a rather bullish EIA [Energy Information Administration] crude oil inventory report that was immediately followed by a decision from the Saudis to increase oil prices to their Asian customers,” said Edward Moya, senior market analyst at Oanda.
“Gasoline demand in the US is impressing and if Americans have big summer vacation plans that could help drive $100 oil calls.”
The US services sector slowed more than expected last month as demand cooled, while a measure of prices paid by services businesses fell to the lowest in nearly three years, according to the latest survey by the Institute for Supply Management.
US job vacancies in February also dropped to their lowest in nearly two years, stoking fears of a recession in the world’s largest economy.
“It seems WTI crude isn’t going to budge from the $80 a barrel level even as the headlines suggest the US economy is quickly weakening,” Mr Moya added.
“The outlook for China is still rather optimistic and that could easily send oil prices $5 higher if we start to see that economy pick up.”
Following production cuts by Opec and its allies, Goldman Sachs expects Brent to trade at $95 a barrel by the end of this year, higher than its previous $90 estimate, and $100 in 2024 compared with a previous $97 forecast. It reduced its oil price forecasts for 2023 earlier, citing growing crude supplies and lower demand.
“Opec+ has very significant pricing power relative to the past given its elevated market share, inelastic non-Opec supply, and inelastic demand,” the investment bank's analysts wrote in a research note last week.
Brent will average $90 per barrel during the course of this year amid tightening supply, Riyadh-based Jadwa Investment said in a note on Thursday.
It forecasts demand to accelerate next year and Opec is set to take advantage of that by increasing output. Brent is expected to ease slightly to $87 per barrel next year amid these developments, according to Jadwa.
“The main positive is the revival of China’s economy, which … [will] rejuvenate the country’s demand for oil and other commodities,” it said. “This is offset by growing signs of distress in the US economy, which is beginning to struggle under the weight of cumulative interest rate increases.”
Oil prices fell in recent weeks after the collapse of Silicon Valley Bank and Signature Bank in the US and a crisis at Switzerland's Credit Suisse, which resulted in the bank’s acquisition by larger rival UBS in an emergency rescue deal.
However, oil prices rose on the Opec+ decision to cut production starting next month. The reopening of the Chinese economy is also supporting oil prices.