Oil rises ahead of OPEC+ meeting, but fears of slowing demand depress the market
Oil prices rose on Friday on bets that OPEC+ will discuss production cuts at its September 5 meeting, but indicators are on track for a weekly decline as China's COVID-19 curb fears and weak global growth weigh on the market.
Brent crude futures rose $1.68, or 1.8%, to $94.04 per barrel as of 0330 GMT, while West Texas Intermediate (WTI) crude futures jumped $1.66, or 1.9%, to $88.27 a barrel.
Both benchmark contracts fell 3% to two-week lows in the previous session. Brent is headed for a weekly decline of around 7% and WTI is on the way down about 5% for this week.
The Organization of the Petroleum Exporting Countries and their allies, called OPEC+, will meet on September 5 to discuss falling prices and demand.
It is not expected that OPEC+ will agree to cut production, but the largest producer Saudi Arabia will likely highlight that it sees a disconnect between current prices and tight supply fundamentals.
OPEC+ lowered its demand outlook this week and now estimates demand will slash supply by 400,000 barrels per day (bpd) in 2022, but expects a market shortfall of 300,000 barrels per day at its baseline for 2023.
It is expected that the group will not change its production targets. Their own numbers show a tighter market than expected and they will likely want to see some more clarity on Iranian supply before making any major changes to their production policy.
Meanwhile, investors are worried about the impact of the recent COVID-19 restrictions in China. Manufacturers like Volvo in the city of Chengdu on Thursday ordered a quarantine.
Oil prices are facing a combination of headwinds with the recent virus lockdowns after weak PMI readings in China pointing to a longer period of lower growth and jeopardizing the demand outlook.
Data showed that in August, Chinese factory activity contracted for the first time in three months due to weakening demand, with power outages and COVID-19 outbreaks disrupting production.
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