By Irina Slav –
Oil prices spiked on Friday morning as Russia announced plans to cut its oil production by 500,000 bpd in March. The plans were a response, according to Deputy Prime Minister Alexander Novak, to western price caps.
Crude oil prices were already set to end the week with an overall gain, although in the second half of the week the price climb began to fizzle out as the Fed signaled it would continue with rate hikes and Chinese demand had failed to impress.
The announcement by Russia means oil prices are now set for a significant gain this week. West Texas Intermediate has climbed nearly 10% since the start of the week even though it had slipped below $78 per barrel in early Asian trade.
On Thursday, both benchmarks closed with a decline as concern that oil infrastructure in Turkey may have been damaged by the devastating earthquakes was alleviated by the lack of any evidence of damage.
Crude oil inventory reports from the United States also served to pressure crude oil prices lower this week. According to the Energy Information Administration, inventories of crude in the country rose for the fourth week in a row and are now above the five-year seasonal average.
Expectations of stronger Chinese demand for crude continue to support oil prices: “We expect Chinese oil consumption to increase by around 1.0 million barrels a day this year, with strong growth emerging as early as late in Q1,” analysts from ANZ Bank said, as quoted by Reuters on Thursday.
“Overall, this should push global demand up by 2.1 million barrels a day in 2023,” they added.
Bloomberg, meanwhile, noted that some option traders expect Brent crude to return to $100 by May, which is earlier than many forecasters expect. Indeed, investment banks such as Morgan Stanley and Goldman Sachs have predicted the return to $100, if it takes place, would take place in the second half of the year.
“The market is seeing a recovery in demand, with mobility in China, the US and Europe all showing improvement,” Gui Chenxi, a CITIC Futures analyst, told Bloomberg.
By Irina Slav for Oilprice.com
Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.