Brent oil set for third weekly gain with tighter markets in view

Brent oil headed for a third weekly gain as the market continued to tighten on the back of supply curbs from Saudi Arabia and Russia.

The global crude benchmark advanced above $94 a barrel, after closing 2% higher on Thursday. The International Energy Agency and Organisation of Petroleum Exporting Countries both warned this week that the market would be in deficit through the end of the year, helping to propel crude more than 4% higher since last Friday’s close.

Demand has also held up on increasing signs the US may be able to avoid a recession, while data from China on Friday beat economists’ estimates in a sign the worst of the downturn is passing. The tightening market is also being reflected in surging fuel prices, with diesel at a record high on a seasonal basis in New York.

Crude in London has now surged over 30% from a low in mid-June, with predictions from analysts that oil will reach $100 a barrel becoming less rare. Still, there are technical signs that the rally is overdone. Brent’s 14-day relative strength index has been above a threshold that signals a pullback is possible for much of the past two weeks.

“Oil markets now have to consider whether $100 a barrel is a possibility for Brent futures in the second half of 2023 given the extent of OPEC+ supply cuts,” said Vivek Dhar, director of mining and energy commodities research at Commonwealth Bank of Australia. Lower global crude stockpiles are putting prices at risk of increased volatility, he said.

Widely-watched timespreads continue to signal a supply shortfall. The gap between global benchmark Brent’s two nearest contracts was 79 cents a barrel in bullish backwardation, the highest level since November.

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