Oil prices poised for first weekly gain in a month

Oil prices are poised for their first weekly gain in a month, fueled by Tropical Storm Francine's disruption of crude production and a broader risk-on sentiment in global markets ahead of anticipated Federal Reserve interest rate cuts.

Brent crude surged past $72 per barrel, marking its third consecutive session of gains and bringing its weekly increase close to 2%. West Texas Intermediate (WTI) remained just shy of $70. Although weaker than previous storms, Francine led to significant production stoppages in the Gulf of Mexico. Meanwhile, across broader markets, rising equities and a weaker dollar bolstered commodity prices, including crude oil.

However, oil remains down 16% this quarter, largely due to concerns over weak demand projections from China, the world's largest oil importer. The International Energy Agency (IEA) reported that global consumption growth in the first half of the year was the lowest since the pandemic, primarily due to China's economic slowdown, as detailed in its monthly report this week.

The IEA further highlighted that Chinese demand contracted for the fourth consecutive month in July, with fuel consumption described as "tepid" at best. The outlook for next year appears even more subdued, with a surplus forecast for every quarter, even if OPEC+ abandons plans to gradually restore withheld supplies.

In the oil futures market, time spreads offered mixed signals. While the Brent prompt spread—the difference between the nearest two contracts—strengthened in line with futures this week, it remains significantly narrower than last month. The most recent spread stood at 6 cents per barrel, down from 76 cents a month ago.

The Federal Reserve is widely expected to begin cutting U.S. interest rates in its upcoming meeting next week, as inflationary pressures ease and signs of a cooling labor market emerge. Lower borrowing costs are likely to support broader economic growth, which could boost energy demand and provide further support to oil prices.