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Oil set to end week unchanged as demand concerns outweigh supply cuts

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By Shariq Khan

BENGALURU (Reuters) -Oil prices held steady on Friday, on track to end at week-ago levels, as weak Chinese data raised doubts about demand growth after Saudi Arabia’s weekend decision to cut output.

Brent crude futures rose 28 cents, or 0.4%, to $76.24 a barrel by 11:45 a.m. EDT (1545 GMT), while U.S. West Texas Intermediate crude was up 15 cents, or 0.2%, at $71.44 a barrel.

Both benchmarks lost more than $3 on Thursday after the Middle East Eye reported that a U.S.-Iran nuclear deal was imminent and would result in more supply. Prices pared losses after both countries denied the report, ending about a dollar a barrel lower.

“Thursday’s price moves show how fragile oil is,” said UBS analyst Giovanni Staunovo.

“The Saudi cut lifted prices slightly, and then the chatter of the potential return of Iranian barrels saw a large drop. Long investors are likely on the sidelines until larger oil inventory declines become visible,” he said.

Oil prices had risen early in the week, buoyed by Saudi Arabia’s pledge over the weekend to cut more output on top of the cuts agreed earlier with the Organization of Petroleum Exporting Countries and its allies. Expectations of higher demand in the U.S. summer driving season also supported prices.

However, a rise in U.S. fuel stocks and weak Chinese export data have weighed on the markets.

China’s factory gate prices fell at the fastest pace in seven years in May and quicker than forecasts, as faltering demand weighed on a slowing manufacturing sector and cast a cloud over the fragile economic recovery.

Some analysts expect oil prices to rise if the U.S. Federal Reserve pauses hiking interest rates at its next meeting over June 13-14. The Fed’s decision may also influence Saudi Arabia’s next move, analysts said.

“The important thing is that despite those changes (Saudi, US-Iran) to output, oil remains below $80, no doubt much to the disappointment of the Saudis,” said OANDA analyst Craig Erlam.

“What comes next may well depend on the inflation data and interest rate decisions over the coming weeks,” he said.

(Reporting by Shariq KhanAdditional reporting by Shadia Nasralla, Yuka Obayashi and Sudarshan VaradhanEditing by David Goodman, Louise Heavens and Richard Chang)

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