Oil rose towards US$69 a barrel on Friday after two sessions of losses, but remained on track for its biggest weekly drop this year due to rising inventories and concerns about an economic slowdown.
U.S. crude inventories rose to hit the highest since July 2017, suggesting ample supplies in the world’s top consumer. Meanwhile, worries that the U.S.-China trade is developing into a more entrenched dispute have also hit prices.
“Clearly, bargain hunters are back in town,” Naeem Aslam, chief market analyst at TF Global Markets, said of the bounce. “However, it is still set to record the worst week of the year and this is due to the increase in trade war tensions between the U.S. and China.”
Brent crude, the global benchmark, rose 98 cents to US$68.74 a barrel, but remained on course for a decline of nearly 5 percent this week. U.S. West Texas Intermediate crude added 75 cents at US$58.66.
Even so, supply cuts – both voluntary and those resulting from U.S. sanctions, kept a floor under prices and some analysts expect the market to recover.
“It is reasonable to doubt whether Saudi Arabia will be willing to step up its output given the latest decline in prices,” analysts at Commerzbank said. “We therefore expect to see higher oil prices again in the near future.”
The Organization of the Petroleum Exporting Countries and allies including Russia, an alliance known as OPEC+, have been cutting supply since January to tighten the market and prop up prices.
U.S. sanctions on the oil industries of Iran and Venezuela, both OPEC members, have curbed their crude exports, reducing supplies further than the OPEC+ deal aimed to.
Brent’s price structure remains in backwardation, in which prices for prompt delivery are higher than those for later dispatch, suggesting a tight balance between supply and demand.
UBS kept a forecast for Brent to again reach US$75 – the year’s high – this month, citing tighter supplies.
“Compliance of OPEC and its allies to the production cut deal remains high, while production from Iran and Venezuela is likely to again trend lower this month,” analyst Giovanni Staunovo wrote in a report.