Oil posts weekly gain on strong demand outlook

Brent closed above $82 a barrel on Friday

An oilfield in Midland, Texas. Global oil demand is expected to hit 104.5 million barrels a day this year. Reuters

Oil prices made a weekly gain on a strong demand outlook and easing inflationary pressure in the US, the world's largest economy.

On Friday, Brent, the benchmark for two thirds of the world’s oil, shed 0.16 per cent to settle at $82.62 a barrel, while West Texas Intermediate, the gauge that tracks US crude, retreated 0.22 per cent to close at $78.45 a barrel.

Both the benchmarks have gained about 4 per cent over the week.

In its monthly oil market report, Opec, maintained its global demand forecast for 2024 at 2.2 million barrels a day.

Crude demand in nations that are not part of the Organisation for Economic Co-operation and Development was projected at about 2 million bpd, driven by China, the world’s largest importer of oil, and other Asian countries.

Global oil demand is expected to reach 104.5 million bpd in 2024, bolstered by strong demand for air travel and healthy road mobility, Opec said in the report.

This month, Opec+ agreed to extend output cuts of 3.66 million bpd, which were initially planned to end this year, until the end of 2025.

However, the group plans to gradually unwind the voluntary curbs of 2.2 million bpd on a monthly basis from October 2024 until September 2025, and has said “the monthly increases can be paused or reversed subject to market conditions”.

“As a super-busy week packed with fresh cues from weekly US stocks and balances data, a troika of closely watched monthly short-term forecasts and the broader financial markets digesting the US Federal Reserve’s latest policy signals and inflation data stateside winds up, the crude complex is settling into a reassessment mode,” said Vandana Hari, chief executive of Singapore-based Vanda Insights.

The US is reporting signs of cooling inflation. There is hope this could prompt the Federal Reserve to cut interest rates.

The Consumer Price Index report showed core inflation rose by 0.2 per cent from April to May, its smallest gain since October.

On an annual basis, core inflation increased by 3.4 per cent, down from 3.6 per cent in April and 3.8 per cent in March, according to the latest data from the Labour Department.

“After surging back above $80 at the start of the week, Brent has stalled around the $82 level, though still on course to end a three-week losing streak,” Han Tan, chief market analyst at Exinity Group, told The National.

“Despite the supportive signs this week of easing US inflationary pressures, oil’s upside was capped amid a surprise build in US stockpiles.”

US commercial crude oil inventories, an indicator of fuel demand, for the week ending June 7 increased by 3.7 million barrels from the previous week, according to the data from the US Energy Information Administration.

“The demand outlook may eventually be sustainably bolstered by greater certainty about Fed rate cuts, or upon signs that the seasonal summer demand is taking hold,” Mr Tan said.

The Fed downgraded its interest rate cut expectations for 2024 on Wednesday, projecting that it would lower US interest rates once this year in a clear signal that plans to ease its restrictive stance have been delayed.