(Reuters) – Oil prices hovered above $90 a barrel on Friday, on track to end the week higher as investors chose to focus on tighter supply, despite broader macroeconomic uncertainty.
Both oil benchmarks hit 10-month highs this week after Riyadh and Moscow extended their voluntary supply cuts of a combined 1.3 million barrels per day (bpd) to the end of the year.
However, both benchmarks ended Thursday slightly lower amid volatile trade on multiple signals warning of weaker demand in the coming months.
Traders who took some profit yesterday are back as they believe that the path of least resistance is certainly skewed to the upside, and oil prices are well on track to close another week in positive territory, said Naeem Aslam of Zaye Capital Markets.
Saudi Arabia will probably find it difficult to end its cuts at the end of the year without triggering an unwanted price slide, Commerzbank analysts added in a note.
Brent crude futures were up 57 cents to $90.49 a barrel by 1112 GMT while U.S. West Texas Intermediate crude (WTI) futures were up 47 cents to $87.34 a barrel.
Both benchmarks close up about 2% last week – at $88.49 a barrel for Brent and $85.02 a barrel for WTI – in anticipation of the cut announcements.
On the demand side, a key concern is China, the world’s largest oil importer. The country has frustrated markets due to its sluggish post-pandemic recovery, while stimulus pledges have fallen short of expectations.
Data on Thursday showed overall exports and imports in the world’s second-largest economy fell in August, as sagging overseas demand and weak consumer spending squeezed businesses.
However, even in times of lacklustre economic activity, China tends to bolster its storage capacity, particularly with the availability of cheap Russian crude. Last month, Chinese crude imports rose nearly 31%.
Demand for crude could also benefit from workers going on strike at projects in Australia which produce about 5% of the world’s supply of liquefied natural gas (LNG).
Meanwhile, questions remain about whether central banks in the United States and Europe will continue their aggressive interest rate hike campaigns to tame persistent inflation.
“Riyadh is acutely aware of the tightrope it walks between tightening the market and upsetting any up-and-until-now progress achieved by central banks in taming price-rise driven inflation,” said John Evans of oil broker PVM.
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