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Oil set to break 7-wk losing streak on stronger sentiment

(Montel) Oil prices continued to rise on Friday – gaining for a third consecutive session – and looked set to break a seven-week losing streak on a weaker US dollar and higher demand forecasts for 2024.

The front-month contract for Brent crude North Sea oil was last seen trading USD 0.07 higher at USD 76.68/bbl, while the WTI equivalent was up USD 0.20 at USD 71.78/bbl.

Both benchmarks were headed towards a slight gain on the week in a strong recovery after hitting their lowest levels since June last week.

“Wave of buying”
Oil prices have been steadily rising since Wednesday after the US Federal Reserve left interest rates unchanged and noted “policy rate is likely at or near its peak”.

“Crude oil was caught up in the wave of buying after the Fed’s apparent shift in tone around monetary policy,” said ANZ bank analysts in a note. “This was aided by a weaker US dollar, which made commodities such as oil priced in that currency more attractive.”

The US dollar has now fallen close to a four-month low against a basket of currencies as the US central bank expects it will start lowering rates from 22-year highs in 2024.

“This offsets concerns of weaker demand,” added ANZ.

Tina Teng, analyst with CMC Markets, also attributed the rebound to the “larger than expected US inventory data” after the US Energy Information Administration reported a weekly decline of 4.3m barrels in the nation's crude inventories late on Wednesday.

On Thursday, the European Central Bank and Bank of England followed the US bank’s lead by leaving rates unchanged.

However, their leaders took a more hawkish tone than the Fed, with ECB president Christine Lagarde warning there was “work to be done” before inflation fell to its 2% target, which market participants said slightly dampened the market rally caused by the Fed decision.

IEA boosts 2024 forecast
Meanwhile, in its latest report on Thursday, the International Energy Agency (IEA) revised down its Q4 demand forecast by close to 0.4m bbl/day, with Europe making up more than half the decline.

Global oil demand was slowing “drastically”, it said, as high interest rates weighed on the economy.

However, it also upgraded its oil demand outlook for next year. “Despite the near-term global economy slowdown, we have increased our outlook for oil demand growth in 2024.”

The IEA estimated world oil consumption would increase by 1.1m bbl/day next year, a 0.13m bbl/day increase from its previous forecast.

This was due to “a somewhat improved GDP outlook”, according to the agency.

“This applies especially to the US, where a soft landing is coming into view, as easing consumer inflation increases the scope for central bank rate cuts. Falling oil prices act as an additional boost to oil consumption,” the IEA added.