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Oil Prices Set for Best Week in Over 2 Months on Demand Outlook and OPEC+ Compliance

Oil prices are showing signs of moderation on Friday as investors weigh the implications of U.S. interest rates remaining elevated for an extended period. Despite this, crude benchmarks are on track to record their most robust weekly performance in over two months, bolstered by optimistic forecasts for crude and fuel demand.

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As of 0646 GMT, Brent crude futures have retreated by 42 cents, or 0.5%, to $82.33 a barrel. Simultaneously, West Texas Intermediate (WTI) U.S. crude futures have dipped by 51 cents, or 0.7%, reaching $78.11 a barrel.

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However, despite today’s slight pullback, both Brent and the U.S. benchmark have surged by over 3% throughout the week, marking their most substantial weekly gains since April 5.

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Key factors contributing to this week’s bullish momentum include the Organization of Petroleum Exporting Countries (OPEC) maintaining an optimistic outlook for global oil demand growth in 2024 and Goldman Sachs projecting robust U.S. fuel demand throughout the summer. These positive sentiments have counteracted the previous week’s losses, primarily driven by OPEC+ agreeing to unwind production cuts starting September.

Tim Waterer, chief market analyst at KCM Trade, remarked, “Overall, this week can be characterized as a recovery effort for oil.” He anticipates further upside potential for oil prices, contingent upon the sustained positive demand outlook, especially during the northern hemisphere summer.

Further buttressing market sentiment, Russia has reaffirmed its commitment to adhere to output quotas under the OPEC+ agreement, despite exceeding its quota in May.

However, this week’s price surge has been tempered by the U.S. Federal Reserve’s decision to maintain interest rates and defer rate cuts until as late as December. Additionally, the International Energy Agency (IEA) projected that oil demand may plateau by 2029, reaching approximately 106 million barrels per day towards the end of the decade.

On a cautionary note, concerns regarding the economic outlook have escalated following the Fed’s stance on rate cuts. Nevertheless, analysts at BMI suggest that a strengthening U.S. dollar resulting from this could provide some support to Brent prices.

Meanwhile, market attention remains focused on ongoing ceasefire negotiations in Gaza. The resolution of these talks could assuage concerns about potential disruptions in oil supply from the region. Notably, the U.S. has expressed apprehensions about escalating hostilities along the Israel-Lebanon border, emphasizing the need for specific security arrangements and underscoring that a Gaza ceasefire alone may not suffice.

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