Weak Demand Concerns Limit Oil Gains, But Oil Still Climbs

Oil prices rose in early trading on Friday, but were on track for their first weekly decline in three weeks as fears about inflation and China's COVID lockdowns, which are stifling global growth, overshadowed worries about Russia's diminishing fuel supply.

At 00:08 GMT, Brent crude prices rose 97 cents, or 0.9%, to $108.42 per barrel, while U.S. West Texas Intermediate (WTI) crude futures rose $1.00, or 0.9%, to $107.13 per barrel.

Both benchmark futures were expected to tumble for the week, with Brent falling more than 3 percent and WTI falling more than 2 percent.

The market continues to be pushed and pulled by the possibility of a European Union ban on Russian oil reducing supply and worries about demand being hampered by sluggish global growth, inflation, and China's COVID restrictions.

Vivek Dhar, a commodities analyst at Commonwealth Bank, remarked, "Demand-related concerns have escalated substantially."

Inflation and aggressive rate hikes have pushed the U.S. currency to 20-year highs, which has restrained advances in oil prices because the strong dollar makes oil more expensive for buyers holding foreign currencies.

Analysts continue to focus, though, on the possibility of a European Union ban on Russian oil, after Moscow levied penalties this week on European units of state-owned Gazprom (MCX:GAZPROM) and Ukraine halted a gas transit route.

Stephen Innes, managing partner of SPI Asset Management, stated, "As Russia takes another step toward weaponizing energy, supply concerns are bolstering oil prices."

According to a report published by the International Energy Agency on Thursday, growing oil output in the Middle East and the United States, as well as a slowdown in demand growth, are likely to "offset an acute supply deficit amid a deepening Russian supply disruption."

The agency predicted that Russia's oil production will decline by over 3 million barrels per day (bpd) from July, or roughly three times more than is already displaced, if sanctions for its involvement in the crisis in Ukraine are expanded or if they discourage additional buying.