Oil prices set to end two-week losing streak

September 01, 2023 (MLN): Oil prices continued their upward momentum on Friday, on track to snap the two-week losing streak driven by expectations that the OPEC+ group of oil producers will extend output cuts until the end of the year.

Brent crude is currently trading at $87.08 per barrel, up by 0.49% on the day.

While West Texas Intermediate crude (WTI) is trading at $83.366 per barrel, up by 0.55% on the day.

Analysts expect Saudi Arabia to extend a voluntary oil production cut of 1 million barrels a day into October, adding to cuts by the Organization Petroleum Exporting Countries and allies, known as OPEC+, as Reuters reported.

"We continue to expect cuts to be extended, with prices above US$90/bbl (on a sustained basis) required to draw OPEC supply back to the market, as well as incentivize U.S. shale producers to increase drilling activity," the National Australia Bank said in a client note on Friday.

U.S. crude inventories USOILC=ECI fell by a more-than-expected 10.6 million barrels last week, government data on Wednesday showed. Commercial crude oil inventories have plunged by 34 million barrels since the middle of July.

Change in U.S. inventories is often viewed as a proxy for global demand-supply balance. Continuous depletion is interpreted as a reflection of a potential supply deficit.

"Signs of stronger demand were also evident in the product market, with implied gasoline demand pushing higher for the first time in three weeks," ANZ said in a research note on Friday.

A weaker U.S. dollar, which looks set to end a six-week winning streak, also helped prices.

A stronger dollar pressures oil demand by making the commodity more expensive for buyers holding other currencies.

Chinese factory activity returning to expansion and the government stepping up efforts to support its housing market also helped boost oil prices on Friday, on hope such action could help stimulate demand growth in the world's second-largest oil consumer.

The country's central bank said on Friday it will cut the amount of foreign exchange that financial institutions must hold in reserve for the first time this year, a move seen aimed at slowing the pace of recent yuan depreciation.

Slowing monthly inflation rates in the U.S. have cemented expectations that the Federal Reserve will keep interest rates unchanged next month.

U.S. August payroll data later in the global day could offer more clues.

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