Oil posts fourth straight week of gains on strong fuel demand hopes

US crude stocks, an indicator of fuel demand in the world’s largest economy, fell by 12.2 million barrels last week

Oil rig pumpjacks near Long Beach, California. Reuters

Oil prices settled lower on Friday but recorded a fourth straight week of gains, on strong fuel demand and tightening supply.

Brent, the benchmark for two thirds of the world’s oil, dropped 1.02 per cent to $86.54 a barrel at the close of trading on Friday. West Texas Intermediate, the gauge that tracks US crude, was down 0.86 per cent at $83.16 a barrel on Friday.

The US benchmark gained about 2 per cent this week, while global benchmark Brent was up 0.15 per cent.

“Crude oil prices have seen a decent recovery in recent weeks, with Brent now trading at a two-month high,” said Giovanni Staunovo, strategist at UBS.

“With oil inventories beginning to decline as a result of solid demand and constrained supply growth, investors have started to build oil exposure again."

US crude stocks, an indicator of fuel demand in the world’s largest economy, fell by 12.2 million barrels in the week that ended on June 28, according to the US Energy Information Administration.

Analysts polled by Reuters were expecting a draw-down of 680,000 barrels.

Total petroleum inventories decreased by 2.2 million barrels last week, while distillate fuel stocks fell by 1.5 million barrels, the EIA data showed.

Opec crude exports fell to 18.1 million barrels per day in June, a decrease of more than 1.6 million bpd month-over-month, marking the lowest crude export level since June 2021, UBS said, citing estimates from tanker tracking company Petro-Logistics.

Nearly all Opec members saw exports fall in the month, with large declines in Saudi Arabia, Iran, the UAE, and Kuwait, the Swiss lender said.

“Warm temperatures in the Middle East and the Hajj pilgrimage likely supported strong domestic demand, resulting in less crude available for exports,” Mr Staunovo said.

Growing power demand in the Middle East, coupled with a warm summer in the Northern Hemisphere and Opec+ supply cuts, will keep Opec exports low in July as well, he added.

Oil prices have gained about 7 per cent since the producer alliance’s meeting on June 2.

Opec+ agreed to extend output cuts of 3.66 million bpd, which were initially planned to end this year, until the end of 2025.

Meanwhile, the additional 2.2 million bpd voluntary production cuts of eight Opec+ member states were extended by three months until the end of September.

The group also released a plan for gradually unwinding the voluntary curbs on a monthly basis from October 2024 until September 2025.

UBS expects oil demand to grow by 1.5 million bpd this year, higher than the International Energy Agency’s growth projection of 1.1 million bpd.

“As a result of Opec+ keeping their production cuts in place this quarter, we expect to see larger oil inventory declines over the coming weeks,” Mr Staunovo said.

“We have already seen oil in transit declining as result of lower global crude exports and solid global crude imports."