Oil rises on expectations of production cuts to be discussed ahead of OPEC+ meeting next week
Oil prices rose on Friday on expectations that OPEC+ will discuss production cuts at its September 5 meeting, but concerns over China's COVID-19 restrictions and weakness in the global economy weigh on the market.
Brent crude futures rose 66 cents to $93.02 a barrel, while West Texas Intermediate (WTI) crude futures rose 26 cents to $86.87 a barrel.
Both indicators dropped 3% in the previous session to two-week lows. Brent fell 7.9% week on week and WTI 6.7%.
A weekly chart shows that U.S. crude futures crossed last week's high, then retraced and closed below last week's close. For some strategists, this is a bearish signal and a sign of a weak market.
The Organization of the Petroleum Exporting Countries and its Russia-led allies OPEC+ will rally on September 5 against expected demand drops, but leading producer Saudi Arabia says supply remains tight.
Three OPEC+ sources said at Monday's meeting that OPEC+ is unlikely to change oil production quotas for October, but some sources said production cuts should be considered to support falling prices from the highs seen earlier this year.
OPEC+ this week revised its market balances for this year and now sees demand lagging 400,000 barrels per day (bpd) from supply compared to the earlier estimate of 900,000 barrels. The producer group expects a market shortfall of 300,000 bpd in the baseline scenario for 2023.
Meanwhile, Iran believes Tehran has sent a "constructive" response to US proposals aimed at reviving the 2015 nuclear deal with world powers. The United States, however, gave a less positive assessment of it. Some investors doubted that a deal supporting oil prices was imminent. There is less confidence that there will be a deal with Iran, which raises intense doubts.
G7 finance ministers agreed on Friday to put a price cap on Russian oil. They added a few new details to the plan, which aims to curb revenue for Moscow's war in Ukraine and keep the flow of crude oil to avoid price increases.
In the United States, employers hired more workers than expected in August. Modest wage growth and the unemployment rate rising to 3.7% could ease pressure on the Federal Reserve to raise rate by a third 75 basis points this month.
US energy companies cut the number of oil and gas wells operating for the fourth time in five weeks this week. According to Baker Hughes, the number of US oil and gas rigs fell five to 760 in the week through September 2.
Russia's Gazprom said Friday that natural gas supplies through the Nord Stream 1 pipeline will remain shut after an oil spill was found at the main gas turbine at the Portovaya compressor station near St Petersburg.
Investors remain concerned about the impact of the recent COVID-19 restrictions in China. In the city of Chengdu on Thursday, manufacturers such as Volvo ordered quarantine.
Data showed that in August, Chinese factory activity contracted for the first time in three months in response to weakening demand, while power outages and COVID-19 outbreaks also disrupted production.
Money managers cut their net long U.S. crude futures and options positions by 10,607 contracts to 168,431 in the week to Aug. 30, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.
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