Oil steadies at 3-week high as OPEC bets offset economic jitters

© Reuters.

Investing.com-- Oil prices steadied at three-week highs in Asian trade on Friday as the prospect of tighter supplies, stemming from deeper Saudi and Russian production cuts, largely offset concerns over slowing economic growth. 

Russian Deputy Minister said on Thursday that Moscow had reached a new deal with its peers in the Organization of Petroleum Exporting Countries and allies (OPEC+) to further cut supplies, and will outline more reductions in production next week. 

The reductions will likely add to ongoing supply cuts by Russia and Saudi Arabia, presenting a tighter supply outlook for the rest of the year, which is expected to boost prices. This notion helped oil prices power past a string of weak economic signals from the U.S. and China this week. 

Brent oil futures steadied at $86.81 a barrel, while West Texas Intermediate crude futures were flat at $83.62 a barrel by 20:27 ET (00:27 GMT). Both contracts were up between 2.9% to 5% this week, with WTI in particular also benefiting from a tighter outlook for U.S. supplies. Data this week showed a substantially bigger-than-expected draw in U.S. inventories before the Labor Day Weekend, which marks peak U.S. summer demand. 

Relative weakness in the dollar, which had tumbled to a three-week low earlier in the week, also helped oil prices push higher, although the greenback found its footing on Thursday following a stronger-than-expected inflation reading. 

Markets are now awaiting more cues on the U.S. economy and interest rates, while economic signals from China are also on tap.

Dollar recovery pressures oil ahead of nonfarm payrolls data

The greenback steadied on Friday after rebounding from near three-week lows, as personal consumption data- the Federal Reserve’s preferred inflation gauge- read hotter than expected for July.

The data was accompanied by softer-than-expected weekly jobless claims, indicating some resilience in the labor market ahead of key nonfarm payrolls data due later in the day.

While other economic readings, such as purchasing managers’ index (PMI) and GDP, showed some cooling in the world’s largest economy, sticky inflation and strength in the labor market still gives the Fed more impetus to keep raising interest rates. 

Markets fear that higher rates will further stymie economic growth this year, weighing on crude demand. Hotter-than-expected euro zone inflation readings also furthered this notion.

Middling Chinese PMI data also weighed on sentiment, as official data showed that manufacturing activity in the world’s largest oil importer shrank for a fifth straight month in August, albeit at a slower-than-expected rate.