Oil rises on firm short term demand outlook

SINGAPORE: Oil rose on Tuesday, lifted by a strong demand outlook for the coming weeks, but overall market conditions remain weak on the back of an ongoing fuel supply overhang, prompting several banks to cut their price forecasts.

Brent crude futures were at $47.18 per barrel at 0658 GMT, up 30 cents, or 0.6 per cent, from their last close.

US West Texas Intermediate (WTI) crude futures were up 33 cents, or 0.7 per cent, at $44.73 per barrel.

Traders said the uptick in prices was in part due to healthy demand expected in the coming weeks.

Weekly US gasoline demand data “compares favourably to the five-year average and miles driven also continue to grow year-onyear,” said Bank of America Merrill Lynch.

However, beyond the seasonal strength, “US gasoline demand may have peaked in absolute terms last year”, it said, adding that there was no structural tightness in sight once the peak demand summer season finishes.

Crude prices are about 18 per cent below their 2017 opening levels despite a deal led by the Organization of the Petroleum Exporting Countries (Opec) to cut production from January.

Opec along with some other major exporters like Russia agreed to hold back around 1.8 million barrels per day (bpd) of production between January this year and March 2018.

However, an over 10 per cent jump since mid-2016 in US production to 9.34 million bpd, as well as rising output from Nigeria and Libya, Opec-members who were exempt from cutting, have undermined efforts to tighten the market.

Opec exported 25.92 million bpd in June, 450,000 bpd more than in May and 1.9 million bpd more than a year earlier.

“Opec has yet to address this increase in production,” US bank Goldman Sachs said, but added that there was a chance that Opec could introduce a deeper output cut in a “shock and awe manner, with little public announcement”.

Should no further cuts happen, Goldman Sach said crude prices could fall below $40 per barrel.