Oil Prices Are Set For Yet Another Weekly Gain

• Oil prices are on course for another weekly gain, with Brent breaking above $84 and WTI nearing the $80 mark.
• The Federal Reserve announced another interest rate hike of 25 basis points this week, but oil markets shrugged off the news.
• Oil traders are increasingly focused on supply, with the OPEC+ cuts and Saudi Arabia’s unilateral cuts combining to tighten the oil market.

Crude oil prices were set for another weekly rise earlier today despite a slight dip from Thursday’s close.

Brent crude, which topped $84 per barrel on Friday, and West Texas Intermediate, which touched $80 per barrel, are both on course for a weekly gain of nearly 4%.

This week, the Federal Reserve announced yet another rate hike of 25 basis points, which should have been bearish for oil. Yet Bloomberg noted in a report from Thursday that there are expectations the Fed is going to wrap up its rate-hiking program soon, which, in turn, is viewed as bullish for crude.

Then there is the OPEC+ production cut and specifically Saudi Arabia’s cut of 1 million bpd in production. Initially brushed off by a market too busy worrying about economic indicators, now the cut is drawing traders’ attention as demand for crude remains robust.

“From a fundamental perspective the recent price uptick has been driven primarily by OPEC+'s voluntary production cuts,” UBS analysts wrote in a note cited by Bloomberg. “In the months ahead oil markets should tighten further.”

ING commodity analysts, on the other hand, pointed out that Saudi Arabia would soon need to decide whether to extend or end the additional cuts.

“The recent price strength might give the Saudis the confidence to start unwinding these cuts, but expectations will have to be managed and they will have to be careful how they go about it – too aggressively and it could put renewed pressure back on the market,” they wrote.

Analysts from the National Bank of Australia believe that the Saudis will not start to unwind the cuts until Brent doesn’t reach $90 per barrel.

"We continue to see upside to oil prices through 3Q23, and expect pricing sustained above US$90/bbl (Brent) would likely be required to see a loosening in OPEC or Saudi Arabia’s voluntary crude supply cuts," the head of the bank’s commodity and carbon strategy, Baden Moore, said, as quoted by Reuters.

By Irina Slav for Oilprice.com

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