Oil heads for weekly gain after OPEC+ cut despite economy headwinds

LONDON (Reuters): Oil rose about 1% on Friday and was headed for a second consecutive weekly gain supported by OPEC+’s decision to make its largest supply cut since 2020 despite concern about recession and rising interest rates.

The cut from the Organisation of Petroleum Exporting Countries and allies including Russia, known as OPEC+, comes ahead of a European Union embargo on Russian oil and will squeeze supply in an already tight market.

Brent crude was up 87 cents, or 0.9%, to $95.29 a barrel at 1110 GMT. US West Texas Intermediate or WTI crude gained 98 cents, or 1.1%, to $89.43.

“Among the key ramifications of OPEC’s latest cut is a likely return of $100 oil,” said Stephen Brennock of oil broker PVM. “Gains, however, will be capped by mounting economic headwinds.”

Both benchmarks were heading for a second weekly gain, with that Brent exceeding 8% this week. The global benchmark is still down sharply after coming close to its all-time high of $147 a barrel in March after Russia invaded Ukraine.

“With Brent now firmly back in the $90-100 range, the group will likely be pleased with the outcome although substantial uncertainty remains over the economic outlook,” said Craig Erlam of brokerage OANDA, referring to OPEC+.

A dip in the US dollar ahead of Friday’s US jobs report also provided oil with some support, although given the Federal Reserve’s commitment to fighting inflation, strategists believe any weakness won’t last.

Dollar strength makes oil more expensive for other currency holders and tends to weigh on oil and other risk assets.

Investors are looking to the US nonfarm payrolls report due later on Friday for clues on how much further US rates need to rise.

US President Joe Biden expressed disappointment on Thursday over OPEC+’s plans and he and officials said the United States was looking at all possible alternatives to keep prices from rising.