Oil nears highest level since April on OPEC+ output cuts, China recovery

July 27, 2023 (MLN): Oil prices advanced further on Thursday supported by supply tightness owing to OPEC+ production cuts and renewed optimism on the outlook for Chinese demand and global growth.

To note, oil prices have posted four consecutive weekly gains on an expected tightening of supply because of output cuts by the Organization of the Petroleum Exporting Countries (OPEC) and on top of some involuntary outages.

Brent crude is currently trading at $83.45 per barrel, up by 0.64% on the day.

While West Texas Intermediate crude (WTI) is trading at $79.46 per barrel, up by 0.86% on the day.

Both benchmarks are on track for the fifth consecutive weekly gain, and intra-day highs for both contracts were near their highest since April 19.

"We see the oil market undersupplied," UBS analysts said in a report. "We retain a positive outlook and look for Brent to rise to $85–90 over the coming months." as Reuters reported.

Still, oil dropped on Wednesday after data showed U.S. crude inventories fell less than expected and the U.S. Federal Reserve raised interest rates by a quarter of a percentage point, leaving the door open to another increase.

"While the consensus broadly expects demand to exceed supply for the remainder of this year, oil prices themselves have so far refrained from providing a signal of such a fundamental trend," said Norbert Ruecker of Swiss bank Julius Baer.

Risk appetite in wider financial markets is being boosted by growing hopes that central banks such as the Fed are nearing the end of policy tightening campaigns, which would boost the outlook for global growth and energy demand.

The European Central Bank, also viewed as approaching the end of its tightening cycle, is expected to raise interest rates for the ninth time in a row on Thursday.

A pledge on Monday from China to boost policy support for the economy has spurred hopes of oil demand regeneration from the world's largest crude importer, Phillip Nova analyst Priyanka Sachdeva said in a note.

A crucial meeting of OPEC+ ministers to assess the market is scheduled for August 04.

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