Oil edges higher as supply still seen tight after OPEC+ hike

LONDON: Oil edged higher on Friday, supported by expectations that OPEC’s decision to increase production targets by slightly more than planned won’t much affect tight global supply and by rising demand as China eases COVID restrictions.

The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, on Thursday agreed to boost output by 648,000 barrels per day (bpd) a month in July and August rather than 432,000 bpd as previously agreed.

Brent crude rose 15 cents, or 0.1%, to $117.76 a barrel by 1338 GMT. US West Texas Intermediate (WTI) crude advanced 37 cents, or 0.3%, to $117.24.

“Markets have passed judgment on the OPEC+ moves unequivocally and clearly believe they will have no meaningful impact on the global supply/demand imbalance,” said Jeffrey Halley of brokerage OANDA.

Although Brent was on track to fall for the week, US crude was heading for a sixth weekly gain on tight US supply, which has prompted talk of fuel export curbs or a windfall tax on oil and gas producers.

OPEC+ divided the hike across its members and still included Russia, whose output is falling due to sanctions and some buyers avoiding its oil over the invasion of Ukraine, suggesting the boost will undershoot the pledged amount.

“OPEC+ is still likely to supply considerably less oil to the market than agreed and thus not bring the relief that had been hoped,” said Commerzbank analyst Carsten Fritsch.

A weekly inventory report on Thursday showed US crude stockpiles fell by a more-than-expected 5.1 million barrels and gasoline inventories also dropped, underlining the tight supply.

Support also came from rising demand. With daily COVID-19 cases falling, China’s financial hub Shanghai and capital, Beijing, have relaxed COVID-19 restrictions this week. The Chinese government has vowed support to stimulate the economy.

Oil held onto gains after US data showed employment increased more than expected in May, signs of a tight labor market that could keep the Federal Reserve’s foot on the brake pedal to cool demand.