Oil prices are expected to rise this week due to increased demand and ongoing tensions in the Middle East
Oil prices climbed on Friday and are poised to end the week on a positive note, buoyed by signs of growing demand in both the U.S. and China and ongoing tensions in the Middle East.
As of 08:40 ET (12:40 GMT), Brent oil futures rose 0.5% to $84.26 a barrel, while West Texas Intermediate crude futures gained 0.6% to $79.73 a barrel.
Oil Prices Set to Gain for the Week
Both benchmark contracts are on track for approximately 2% gains this week, bolstered by stronger-than-anticipated import data from China, the world’s top oil importer. Positive signals of robust domestic demand in China fueled optimism about a potential uptick in oil demand from the Asian powerhouse.
China’s oil imports also contributed to the upbeat market sentiment, as imports fell from the previous month but surpassed levels from the same period last year.
Meanwhile, U.S. crude inventories unexpectedly declined last week, with projections indicating increased refining and fuel demand driven by higher travel activity during summer.
“EIA data shows that U.S. commercial crude oil inventories dropped by 1.36 million barrels over the last week, contrary to the 500,000-barrel increase reported by the API,” said analysts at ING in a note.
“The decline in crude oil stocks was mainly due to higher exports, which rose by 550,000 barrels per day week-on-week to 4.47 million barrels per day, and stronger refinery activity.”
Israel-Hamas Ceasefire Remains Unlikely Amid Rising Tensions Despite ongoing ceasefire discussions, Israel continues its attacks on the southern Gaza city of Rafah, according to Hamas. These attacks persist even as the U.S. announced plans to suspend weapon shipments to Israel over the Rafah strikes.
The Rafah strikes underline ongoing geopolitical tensions, which sustain a risk premium in crude markets as the unrest in the Middle East could potentially disrupt supplies from the oil-rich region.
OPEC+ Expected to Maintain Output Cuts
Oil prices also received support this week from speculation that the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, will maintain existing output cuts to manage global supply.
“OPEC+ members may feel uneasy if Brent nears $80 per barrel, a price point not far off from current levels,” ING added.
“As previously noted, price weakness could prompt OPEC+ members to extend their 2.2 million barrels per day of additional voluntary cuts into the second half of the year. This approach could risk overtightening the market later in 2024, assuming demand remains stable.”
