Oil prices bounced back from a midweek dip to record their sixth week of gains in a row on Friday, after leading oil exporters Saudi Arabia and Russia pledged to extend supply cuts to support the market.
Brent, the benchmark for two thirds of the world’s oil, rose 1.29 per cent, or $1.10, to settle at $86.24 a barrel. West Texas Intermediate, the gauge that tracks US crude, gained 1.27 per cent, or $1.09, to close at $82 a barrel.
During that stretch of gains, Brent added about 17 per cent, while WTI rose nearly 20 per cent. In the year-to-date, the benchmarks are up about 0.4 per cent and 3.2 per cent, respectively.
Prices had dropped on Wednesday on a strong dollar and after Fitch Ratings downgraded the US's credit rating.
“Oil prices continued to see strong volatility, with traders considering changes in the market. Crude prices could find support as production cuts are extended,” Daniel Takieddine, chief executive for Mena at trading platform BDSwiss, wrote in a note.
On Thursday, Saudi Arabia, the world's largest oil exporter, said it will be extending its voluntary oil production cut of one million barrels a day until September.
The production cut is in addition to the voluntary reduction previously announced by the kingdom in April, which will stay in effect until December 2024, the Energy Ministry said.
The cut, which first took effect in July, could be further “extended and deepened” and is aimed at supporting the stability and balance of oil markets, the ministry added. The kingdom said in July that it would extend its unilateral production cut of 1 million barrels a day until August.
On Friday, a day after Riyadh's decision, the Opec+ alliance of 23 oil-producing countries agreed to stick to its current output policy, as the group’s production cuts tighten supply and push oil prices higher, the group said after an online meeting of its Joint Ministerial Monitoring Committee.
Opec+ has total production cuts in place of 3.66 million bpd, which includes a 2 million bpd reduction agreed on last year as well as voluntary cuts of 1.66 million bpd announced in April.
Russia, another top oil exporter, is also expected to reduce its crude exports by 500,000 bpd this month.
“With the production cut extended, we anticipate a market deficit of more than 1.5 million barrels per day (bpd) in September, following an estimated deficit of around 2 million bpd in July and August,” analysts at Swiss bank UBS wrote in a note.
Futures are seen to be recovering in the second half of the year after macroeconomic concerns and resilient Russian crude supply weighed on market sentiment over the past few months.
They were also supported by a record drop in US crude stocks: US crude inventories, an indicator of fuel demand, fell by 17 million barrels to 439.8 million barrels last week, the lowest levels since 1985, according to the US Energy Information Administration.
Goldman Sachs has reaffirmed its Brent forecast of $86 a barrel by December and expects prices to rise to $93 in the second quarter of 2024. The investment bank also raised its 2023 oil demand estimate by 550,000 bpd.
UBS expects Brent to trade in the range of $85 to $90 a barrel over the coming months and has attributed the recent rise in prices to Opec+’s voluntary output cuts and production interruptions in Mexico, Nigeria and Libya.
Oil demand is projected to breach 103 million bpd in August, driven by higher consumption in China and India, according to the bank.
Lower possibility of a recession in the US and the EU has also improved the crude demand outlook.