Oil prices edged lower on Friday as improving global supplies and expectations of higher output from major producers weighed on crude benchmarks, though West Texas Intermediate remained on course for a strong weekly gain.
Brent crude, the international benchmark, slipped towards $85 a barrel, while US benchmark WTI hovered near $81. Both contracts had risen earlier in the week on signs of robust demand and geopolitical risk, but the rally lost momentum as supply concerns eased.
The downward move followed reports that OPEC and its allies, known as OPEC+, are preparing to gradually unwind some of their voluntary production cuts. The group is expected to begin restoring roughly 2.2 million barrels per day of supply later this year, a prospect that has tempered the recent bullish sentiment in crude markets.
At the same time, disruptions that had supported prices earlier in the year have faded. Maintenance at several North Sea fields has concluded, and exports from key producers have normalised. In the US, crude stockpiles have risen in recent weeks, adding to the sense that the market is adequately supplied for now.
«The oil market is recalibrating as supply risks recede,» said one analyst, noting that the focus has shifted from potential shortages to the pace at which OPEC+ will return barrels to the market. «The question is whether demand can absorb the additional supply without prices falling further.»
Despite Friday's softness, WTI is still set for a weekly gain of around 3 per cent, its strongest in several weeks. The US benchmark has been supported by firm refining margins and signs of healthy fuel consumption ahead of the summer driving season. Petrol demand in the US has picked up, and refinery utilisation rates have climbed, drawing down some product inventories.
Brent, meanwhile, is on track for a more modest weekly advance. The international benchmark has been pressured by weaker economic data from China, the world's largest oil importer. Recent figures showed slower-than-expected growth in Chinese manufacturing activity, raising questions about the strength of crude demand in Asia.
The mixed signals have left traders cautious. Money managers have reduced bullish bets on crude in recent weeks, according to exchange data, reflecting uncertainty over the demand outlook and the timing of OPEC+ supply increases. Open interest in WTI futures has also declined, suggesting some investors are stepping to the sidelines.
Analysts said the market is likely to remain range-bound in the near term, with Brent trading between $80 and $90 a barrel. Downside risks include a faster-than-expected return of OPEC+ barrels and persistent weakness in Chinese demand. Upside risks stem from geopolitical tensions in the Middle East and the possibility of supply disruptions in other producing regions.
For UK businesses, the direction of oil prices matters for input costs, particularly in transport, manufacturing and energy-intensive industries. Sterling-denominated crude prices have been relatively stable, but any sustained rise would add to inflationary pressures that the Bank of England is already monitoring closely.
Looking ahead, investors will focus on next week's meeting of OPEC+ ministers, where the group is expected to confirm its production plans for the coming months. US inventory data and monthly reports from the International Energy Agency and OPEC will also provide fresh clues on the balance between supply and demand.
For now, the oil market appears to be settling into a more comfortable equilibrium, with supplies improving and demand growth steady but unspectacular. That may keep a lid on prices, even as WTI notches up a respectable weekly gain.