Oil posts fifth weekly gain amid tightening crude market

US gross domestic product growth beats market estimates in the second quarter

Manhattan, New York. The US economy expanded by 2.4 per cent in the second quarter, up from 2 per cent in the first quarter. AFP

Oil prices rose on Friday and posted a fifth consecutive weekly gain, marking the longest streak of weekly gains in more than a year amid tightening supply and an improving economic outlook.

Brent, the benchmark for two thirds of the world’s oil, settled 0.89 per cent higher at $84.99 per barrel at the close of trading on Friday, while West Texas Intermediate, the gauge that tracks US crude, was up 0.61 per cent at $80.58 per barrel.

On Thursday, Brent settled 1.59 per cent higher at $84.24 a barrel while WTI was up 1.66 per cent at $80.09.

Falling crude stocks, tightening supply and easing concerns about aggressive interest rate increases have supported crude futures in recent weeks, with Brent up by about $10 from a month ago.

US crude stocks, an indicator of fuel demand, fell by 600,000 barrels to 456.8 million barrels in the week that ended on July 21, according to the US Energy Information Administration.

Analysts polled by Reuters were expecting a drop of 2.3 million barrels.

Meanwhile, US gross domestic product in the second quarter expanded by 2.4 per cent, up from 2 per cent in the first quarter and higher than the market consensus of 1.6 per cent, the country's Commerce Department said.

“The data confirms that the US economy is performing more strongly than had been anticipated at the start of the year,” Emirates NBD analysts said in a research note on Friday.

On Wednesday, the US Federal Reserve raised interest rates by 25 basis points, its 11th increase since March 2022, as part of its efforts to lower inflationary pressure on the nation's economy.

This has brought the Fed's benchmark rate to the target range of 5.25 per cent and 5.5 per cent, the highest in 22 years.

“Inflation has moderated somewhat since the middle of last year. Nonetheless, the process of getting inflation back down to 2 per cent has a long way to go,” Fed chairman Jerome Powell told reporters.

The central bank chief said it was “certainly possible” to raise the funds rate again at the September meeting, “if the data warranted” such a move.

Meanwhile, the European Central Bank also raised interest rates on Thursday by 0.25 per cent – following the lead of the Fed – as part of efforts to tame inflation.

It was the bank's ninth straight increase and took the closely watched deposit rate to 3.75 per cent – a level last hit in May 2001 and equal to its previous record high.

“Inflation continues to decline but is still expected to remain too high for too long,” the ECB said.

“While some measures show signs of easing, underlying inflation remains high overall."

Higher interest rates dampen economic growth, lowering crude demand.

Despite recession concerns, oil demand is projected to breach 103 million bpd in August for the first time, according to UBS strategists.

The Swiss lender expects the global benchmark to trade in the range of $85 to $90 a barrel over the coming months as the market adjusts to Opec+ production cuts and higher crude demand in Asia.

Opec+ production, which hit a one-year low in June, is expected to be "considerably" lower this month due to Saudi Arabia's extra voluntary output cut and production interruptions in Mexico, Kazakhstan, Nigeria and Libya, the bank said.

Saudi Arabia, the world's largest oil exporter, said this month that it would extend its voluntary output cut of a million bpd until August.

Russia will also cut its oil supplies by an additional 500,000 bpd next month.

"We recommend buying commodities at this point in the cycle, which has proven to be a favourable strategy historically," MUFG said in a research note.

The current set up "bears striking resemblance to 2007’s late cycle wherein the global economy is below capacity and growing, yet inventories and spare capacity are depleted", Japan's largest bank said.

China is a key driver of the global oil demand growth, and its weaker-than-expected economic recovery has led to market concerns, so any "countercyclical efforts" to boost domestic demand, improve expectations, and prevent risks will support the oil market, MUFG said.

"Going forward, the key lies in if we see a big shift in speculative sentiment," the bank said.

"Indeed, in our view, oil is poised to keep rising with rate hikes ending, the US dollar peaking, demand surging, all juxtaposed against the structural underinvestment thesis."