Oil prices on track for weekly gain as recession fears ease

Oil prices dipped in early trade on Friday amid uncertainty on the demand outlook based on contrasting views from OPEC and the International Energy Agency (IEA), but benchmark contracts were headed for weekly gains as recession fears eased.

Brent crude futures fell 34 cents, or 0.3 per cent, to $99.26 a barrel at 0112 GMT, while US West Texas Intermediate (WTI) crude futures fell 34 cents, or 0.3 per cent, to $94.00 a barrel.

Brent was on track to climb more than 4 per cent for the week, recouping part of last week's 14 per cent tumble, its biggest weekly decline since April 2020 amid fears that rising inflation and interest rate hikes will hit economic growth and fuel demand.

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WTI was heading for a weekly gain of more than 5 per cent, recouping about half of the previous week's loss.

"There's a great deal of uncertainty about demand in the short run. Until that settles, it (the market) will be like this for a while," said Justin Smirk, a senior economist at Westpac.

On Thursday, the Organization of the Petroleum Exporting Countries (OPEC) cut its forecast for growth in world oil demand in 2022 by 260,000 barrels per day (bpd). It now expects demand to rise by 3.1 million bpd this year.

That contradicts the view from the IEA. The latter raised its forecast for demand growth, to 2.1 million bpd, due to gas-to-oil switching in power generation as a result of soaring gas prices.

At the same time, the IEA raised its outlook for Russian oil supply by 500,000 bpd for the second half of 2022, as the country's output had proven more resilient than expected despite sanctions over the Ukraine conflict. However, the IEA said OPEC would struggle to boost production.

"The net picture that the IEA painted was a mix," said Commonwealth Bank analyst Vivek Dhar. "Russian supply has been more resilient than thought."

"Assessing global oil balances by the end of the year right now, given what's happening on the demand side versus what's happening on supply side - it's just complicated. That's why you have the daily volatility."