Brent, the benchmark for two thirds of the world’s oil, added 0.47 per cent to close at $86.81 a barrel. West Texas Intermediate, the gauge that tracks US crude, rose 0.45 per cent to settle at $83.19 a barrel.
In the latest rally, Brent has adding about 17 per cent, while WTI has risen almost 20 per cent, pushing them to post slight gains since the beginning of this year.
Global demand for crude has reached record levels, driven chiefly by consumption in China that is threatening to push crude prices higher, according to the agency.
China, the world’s biggest oil importer, will account for 70 per cent of demand growth this year.
Oil exporters’ moves to extend supply cuts to support crude prices have also tightened the markets significantly, which will also support a rise in prices in the second half of this year, the agency said on Friday.
World fuel use averaged 103 million barrels a day for the first time in June and rise higher this month, the agency's data showed.
“Oil demand is scaling record highs, boosted by strong summer air travel, increased oil use in power generation and surging Chinese petrochemical activity,” the agency said.
“Crude and products inventories have drawn sharply” and “balances are set to tighten further into the autumn”, it said.
Oil prices touched a six-month high of almost $88 as Saudi Arabia, the world's largest oil exporter, recently 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 announced by the kingdom in April, which will stay in effect until December next year, the Energy Ministry said.
The cut, which first took effect last month, could be further “extended and deepened” and is aimed at supporting the stability and balance of oil markets, the ministry said. The kingdom said it will extend its unilateral production cut of one million barrels a day until August.
The positive sentiment was also supported by Opec maintaining its outlook for oil demand this year.
The group expects healthy oil fundamentals in the second half as the global economy continues to recover from the coronavirus pandemic, Opec said in its monthly oil market report on Thursday.
World oil demand is projected to rise by 2.4 million barrels per day to an average of 102 million, unchanged from last month’s estimate, the report said.
“The latest Opec data indicated that we would see a sharp supply deficit of more than two million bpd this quarter as Saudi cuts output to push prices higher. And this gap could further widen as global demand continues growing and the shift to alternative energy sources is nowhere fast enough to reverse that upside pressure,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
Traders are also closely watching the wider economic outlook and the geopolitical situation with the war in Ukraine. The US Federal Reserve’s moves to increase rates could hit crude demand growth and are also on traders’ radar.
“Oil is taking a run at this year’s highs on Black Sea risks, alongside tightening micro fundamentals with a market in deficit and a less pessimistic global macro outlook,” MUFG bank said in a research note to investors.
Analysts at JPMorgan expect oil demand to grow by 1.3 million bpd in the third quarter compared with the second quarter of this year and crude prices to continue marching higher from the current levels.
“We believe prices will continue to climb from here towards $90 – or even above – by September,” JPMorgan analysts said in a report.
Key market gauges are pointing to a “rapidly tightening physical market” however, the global market will tip from deficit back into a slight supply surplus in the fourth quarter and into next year, the bank said.
Oil prices have risen more than 20 per cent since late June, buoyed by Opec+ actions, as well “less bleak” economic outlook as countries make progress on inflation, “allowing for the end – or near-end – of tightening”, said Craig Erlam, senior market analyst at Oanda.
“While those things may change over the coming months, there’s clearly more optimism now,” he said.
However, “we are seeing some signs of momentum waring thin as Brent approaches $90 [per barrel] and trades around its 2023 highs,” he added.