Oil posts weekly gain after recording biggest jump in six weeks amid China optimism

Moody’s Analytics lowered its price forecast by $4 for the second and third quarters on rising Russian supply

Oil pump jacks in Texas. UBS raised its US supply forecast by 200,000 bpd after the EIA projected record high production for the country in 2023 and 2024. Reuters

Oil prices posted a weekly gain after jumping the most in six weeks on Thursday amid optimism over fuel demand recovery in China, the world’s second-largest economy and top crude importer.

Brent, the benchmark for two thirds of the world’s oil, settled 1.24 per cent higher at $76.61 a barrel at the close of trading on Friday, while West Texas Intermediate, the gauge that tracks US crude, was up 1.64 per cent at $71.78 a barrel

On Thursday, Brent settled 3.37 per cent higher at $75.67 while WTI rose by 3.44 per cent to $70.62.

“The positive sentiment was seemingly driven by the Chinese stimulus measures and hopes that this would stimulate the economy and oil demand through the second half of the year,” Emirates NBD economists said in a research note on Friday.

China's oil refinery throughput rose 15.4 per cent to 62 million tonnes in May from a year earlier, reaching its second-highest total on record, according to the National Bureau of Statistics.

On Tuesday, the Asian country’s central bank cut a key short-term lending rate for the first time in 10 months after disappointing economic data.

The People’s Bank of China lowered its seven-day reverse repo rate by 10 basis points to 1.9 per cent, from 2 per cent, as part of efforts to support economic growth.

Despite signs that the fuel demand outlook is improving, analysts and banks say that there are no clear indications of the oil market tightness predicted in the second half of 2023.

On Thursday, Moody’s Analytics lowered its crude oil price forecast by $4 a barrel for the second and third quarters of 2023, citing rising Russian crude supply.

It now expects Brent crude to average $83.02 a barrel this year, lower than an earlier estimate of $85.45.

“It has become clear that Russia will be able to evade and bypass the massive oil sanctions levied upon them by western powers for its invasion of Ukraine,” Moody’s Analytics said.

The market intelligence company said it expects western sanctions and the EU’s oil import ban to restrain Russian exports.

“That has not happened, however and if it has not happened yet, it might not happen at all,” it said.

Russian oil exports hit 8.3 million barrels per day in April, the highest since Moscow’s invasion of Ukraine last year, the International Energy Agency said last month.

Moody’s Analytics also raised its forecast for Russian crude exports by 500,000 bpd and said the risks were “weighted to the upside”.

Switzerland's largest bank UBS also slashed its September and December oil price forecasts by $5 a barrel each, citing higher-than-expected supply from Russia and the US.

“Despite the solid demand recovery, global visible oil inventories did not fall in the first four months of this year because supply growth was also solid,” UBS strategists said.

The Swiss lender also bumped up its US supply forecast by 200,000 bpd after the EIA projected record high production in the country for this year and the next.

UBS said the Saudi production cut of a million bpd and voluntary Opec+ output curbs would widen the oil market deficit to more than 2 million bpd by July, from 1.5 million bpd this month.

“Once these deficits become visible in on-land oil inventories, we expect oil prices to trend higher.”

The Opec+ alliance of 23 oil-producing countries said it would stick to its existing output cuts until the end of 2024.

The group has total production curbs of 3.66 million bpd, or about 3.7 per cent of global demand, in place, including a 2 million bpd reduction agreed on last year and voluntary cuts of 1.66 million bpd announced in April.