By Laila Kearney
NEW YORK (Reuters) -Oil was up 2.5% on Friday after a U.S. official told Reuters that an immediate Saudi oil output boost was not expected, and as investors question whether OPEC has the room to significantly ramp up crude production.
The comment during U.S. President Joe Biden’s Middle East visit comes at a time when spare capacity at members of the Organization of the Petroleum Exporting Countries (OPEC) is running low.
“Part of the support (today) is that everybody and their brother who digs down into the Saudi situation see that they don’t have a lot of capacity left,” said John Kilduff, partner at Again Capital LLC in New York.
Brent crude futures were up $2.40, or 2.4%, to $101.50 a barrel by 12:57 p.m. EDT (1657 GMT), while West Texas Intermediate crude rose $2.41, or 2.5%, to $98.19.
Both benchmarks are on track for their biggest weekly percentage drops in about a month, largely on fears earlier in the week that a nearing recession would chop away at demand. Brent moved towards its third weekly drop, while WTI headed for its second weekly decline.
Biden, prompted by energy and security interests, arrived in Jeddah on Friday and had been expected to call for Saudi Arabia to pump more oil.
But the United States does not expect Saudi Arabia to immediately boost oil production and is eyeing the outcome of the next OPEC+ meeting on Aug. 3, a U.S. official told Reuters.
The United States could still secure a commitment that OPEC will boost production in the months ahead in hopes that it will provide a signal to the market that supplies are coming if necessary.
“(Biden’s) case will have been weakened significantly by the latest price rout,” said Stephen Brennock of oil broker PVM.
Meanwhile, the U.S. oil rig count, an early indicator of future output, inched up by two to 599 this week to their highest since March 2020, energy services firm Baker Hughes Co said.
The U.S. Federal Reserve’s most hawkish policymakers on Thursday said they favoured a rate increase of 75 basis points at its policy meeting this month, not the bigger increase traders had priced in after a report on Wednesday showed inflation was accelerating.
Concerns that the Fed might opt for a full 100 bps rate rise this month and weak economic data had led to Brent and WTI shedding more than $5 on Thursday to below the closing price on Feb. 23, the day before Russia invaded Ukraine, though both contracts clawed back nearly all the losses by the end of the session.
Analysts, however, expect continued pressure on oil from concerns over the global economy.
“Brent has dipped noticeably below $100 per barrel this week. It is likely to continue sliding given that the recession fears will presumably not abate for the time being,” Commerzbank said in a note.
Bearish market sentiment has also followed renewed COVID-19 outbreaks in China, which have hampered a demand recovery.
China’s refinery throughput in June shrank nearly 10% from a year earlier, with output for the first half of the year down 6% in the first annual decline for the period since at least 2011, data showed on Friday.
(Additional reporting by Rowena Edwards in London, Jeslyn Lerh in Singapore Editing by Marguerita Choy and Susan Fenton)