Oil prices surge 2% to post weekly gain on Opec+ supply cut extension hopes

Oil prices surged on Friday and recorded a weekly again amid expectations that Opec+ crude producers would extend supply cuts into the second quarter.

Brent, the benchmark for two thirds of the world’s oil, settled 2 per cent higher at $83.55 a barrel. West Texas Intermediate, the gauge that tracks US crude, climbed 2.19 per cent to settle at $79.97 a barrel.

“Oil bulls are quietly winning the narrative as prices are working their way higher, with a breakout of the $10 range that it’s been confined to so far in 2024, now imminent,” said Ehsan Khoman, head of commodities, ESG and emerging markets at MUFG.

Although the steady climb in prices is not “remarkable”, a combination of “unique” economic conditions, increasing demand and signs of supply tightness support a positive outlook for the oil market, he added.

MUFG expects Brent to be in the range of $80-$90 a barrel this year, while US investment bank Goldman Sachs has projected the international benchmark to trade between $70 and $90.

The Opec+ alliance of oil producing countries will consider extending voluntary cuts of 2.2 million barrels a day into the second quarter, Reuters reported earlier this week, citing sources.

The group, which also has supply curbs of 3.66 million bpd in place until 2024-end, may extend the voluntary cuts until the end of the year, sources said.

Crude prices have been volatile this year, largely due to supply concerns arising from attacks on oil vessels in the Red Sea.

Meanwhile, persistent high inflation in major economies has added to uncertainty regarding the outlook for crude demand, which has capped oil price gains.

The US Federal Reserve's preferred metric for tracking inflation rose in January, underlining the central bank's bumpy path towards its long-term 2 per cent target.

The Personal Consumption Expenditures (PCE) Price Index rose in line with expectations at 0.3 last month, up from a revised 0.1 per cent increase in December, the Commerce Department reported on Thursday.

On an annual basis, PCE inflation rose 2.4 per cent, down from 2.6 per cent.

Core PCE – which excludes food and energy – rose 0.4 per cent last month. On an annual basis, core inflation rose 2.8 per cent, slightly down from 2.9 per cent in December.

“As such, yesterday’s data hinted at inflation uptick in January, but the data came as a relief for those who were prepared for the worst,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

"A soft jobless claims figure also helped [in] cooling the hawkish Fed worries," she added.

The Fed kept its target rate unchanged between 5.25 per cent and 5.50 per cent when it last met, and suggested rates had reached their peak, leading markets, and borrowers to question how long they will remain elevated.

Lower interest rates support economic growth, which fuels crude oil demand.

US crude inventories, an indicator of fuel demand, increased by 4.2 million barrels in the week that ended on February 23, according to the the US Energy Information Administration.

Analysts polled by Reuters expected a growth of 2.7 million barrels.

However, petroleum stocks decreased by 2.8 million barrels last week, while distillate stocks dropped by 500,000 barrels, EIA data showed.