Oil Prices Settle Higher

Oil prices settled higher on Friday, snapping a four-week losing streak as fears of a global economic slowdown eased, improving demand sentiment.

At 14:30 ET (18:30 GMT), Brent oil futures rose 0.6% to $79.66 a barrel, while West Texas Intermediate crude futures climbed 0.9% to $76.84 a barrel.

Rig Counts Climb

The number of oil rigs rose by 3 to 485 from a week ago, as reported by Baker Hughes on Friday.

This uptick in rig counts, indicating increased drilling activity, comes as the U.S. Department of Energy revised its forecast for domestic crude oil production down to 300,000 barrels for 2024 from an earlier estimate of 320,000 bpd for this year.

Chinese Inflation Improves Slightly

Better-than-expected U.S. jobless claims data on Thursday improved sentiment, raising hopes that the world’s largest economy might avoid a recession.

Data released earlier on Friday indicated that Chinese consumer price index inflation grew more than anticipated in July, while the decline in producer price index inflation was slightly less than expected. This data shows some improvement trends in the world’s biggest oil importer. However, inflation remains stagnant, with sustained declines in factory prices suggesting a deflationary trend is still present.

China’s oil imports also shrank in July, contributing to fears of decreasing demand in the country, significantly impacting oil markets.

U.S. Inventories, Middle East Tensions Help

Initial gains in crude prices were driven largely by bargain-buying after a severe drop on Monday put prices at seven-month lows.

Signs of steady draws in U.S. inventories raised hopes that demand remained buoyed by the travel-heavy summer season, despite a slower pace of draws.

Traders began attaching a greater risk premium to oil prices following Ukraine’s significant attacks on Russia since the conflict began in early 2022. Moreover, ongoing tensions in the Middle East, especially fears of Iranian and Hamas retaliation against Israel, also contributed to risk factors affecting oil.

The recent death of senior militants from Hamas and Hezbollah heightened concerns of retaliation by Iran against Israel, raising supply concerns from the world’s largest oil-producing region.

Oil Prices Have ‘Downside Risk’

Despite this week’s gains, global oil demand growth needs to accelerate in the coming months. Otherwise, the market may struggle to absorb the increase in oil supply that OPEC+ plans to introduce starting in October.

Oil demand growth in the first seven months of the year from top consumers, the United States and China, has fallen short of expectations even before recent renewed fears of a U.S. recession.

If the economy declines further, oil demand growth is likely to slow, necessitating either a delay in OPEC+ plans to pump more oil or an acceptance of lower prices for a higher supply.

“Oil demand definitely has a downside risk,” remarked Neil Atkinson, an independent analyst previously with the International Energy Agency, citing concerns regarding the Chinese and U.S. economies. He added, “It’s very difficult to see how prices can rise significantly if demand is slower than we thought,” predicting that OPEC+ might pause on increasing output.

(Peter Nurse, Ambar Warrick contributed to this article).