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Oil heads for weekly rise after IEA predicts record demand

by Staff GBAF Publications Ltd
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Oil heads for weekly rise after IEA predicts record demand

By Laila Kearney

NEW YORK (Reuters) -Oil prices were up on Friday and headed for a fourth straight week of gains after the West’s energy watchdog said global demand will hit a record high this year on the back of a recovery in Chinese consumption.

The International Energy Agency (IEA) also warned that deep output cuts announced by OPEC+ producers could exacerbate an oil supply deficit and hurt consumers.

Brent crude futures were up 21 cent at $86.30 per barrel at 1:38 p.m. EDT (1738 GMT). West Texas Intermediate crude futures (WTI) rose 35 cents to $82.51.

Both contracts were set to post a fourth consecutive week of gains amid easing concerns over a banking crisis that struck last month and the surprise decision last week by the Organization of the Petroleum Exporting Countries (OPEC) and other producers led by Russia – a group known as OPEC+ – to further cut output.

Brent is set to post a 1.5% weekly gain, while WTI was up 2.4% on the week. Four weeks of increases would be the longest such streak since June 2022.

In its monthly report on Friday, the IEA said world oil demand is set to grow by 2 million barrels per day (bpd) in 2023 to a record 101.9 million bpd, driven mostly by stronger consumption in China after the lifting of COVID restrictions there.

Jet fuel demand accounts for 57% of the 2023 gains, it said.

But OPEC on Thursday flagged downside risks to summer oil demand as part of the backdrop for its decision to cut output by a further 1.16 million bpd.

“Oil prices are being lifted by signs of increased demand in China which is helping offset warnings from OPEC,” Fiona Cincotta, analyst at City Index, said in a note.

The IEA said the OPEC+ decision could hurt consumers and global economic recovery.

“Consumers confronted by inflated prices for basic necessities will now have to spread their budgets even more thinly,” it said in its monthly oil report. “This augurs badly for the economic recovery and growth.”

The IEA said it expected global oil supply to fall by 400,000 bpd by the end of the year, citing an expected production increase of 1 million bpd from outside of OPEC+ beginning in March versus a 1.4 million bpd decline from the producer bloc.

The U.S. dollar index was trading at roughly a one-year low, after U.S. consumer and producer price data releases raised expectations that the Fed was approaching the end of its rate-hiking cycle.

Still, the greenback edged up on Friday, making dollar-denominated oil more expensive for investors holding other currencies, and limiting oil price growth.

“At the end of the day, we see some choppy/sideways price action given a myriad of bearish and bullish price drivers that could prove offsetting,” said Jim Ritterbusch of consultancy Ritterbusch and Associates.

(Additional reporting by Ron Bousso in London, Andrew Hayley in Beijing and Trixie Yap in Singapore; editing Jason Neely, Sharon Singleton and Susan Fenton)