Oil prices rose about 2% on Friday (July 11) as investors weighed a tight near-term market compared to the potential large surplus projected by the International Energy Agency (IEA) this year, while U.S. tariffs and possible further sanctions against Russia were also in focus.

Brent crude futures rose $1.35, or 2%, to $69.99 a barrel at 10:48 a.m. EDT (1458 GMT). U.S. West Texas Intermediate crude rose $1.49, or 2.2%, to $68.06 a barrel. At those levels, Brent is expected to gain 2.5% this week, while WTI is up about 1.6% from last week's close.

The IEA said on Friday that global oil markets may be tighter than expected, with demand supported by peak refinery operations in the summer to meet travel and power generation needs. Brent's September front-month contract was trading at a $1.18 premium to the October futures contract at 10:48 a.m. EDT.

"Crude oil prices are supported by the perception of significant balance sheet tightening, with the continued steepening of the spread curve providing an explanation," analysts at energy consultancy Ritterbusch and Associates said in a note. Despite the short-term market tightness, the IEA raised its supply growth forecast for this year while cutting its demand growth outlook, implying a surplus market.

"OPEC+ will soon and significantly increase oil supply. There is a threat of a significant oversupply. However, in the short term, oil prices remain supported," Commerzbank analysts said in a note, referring to the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia.

Adding support to the short-term outlook, Russian Deputy Prime Minister Alexander Novak said on Friday that Russia will compensate for excess production against this year's OPEC+ quota in the August-September period.

Another sign of strong near-term oil demand is the prospect of Saudi Arabia shipping about 51 million barrels of crude to China in August, the largest shipment in more than two years. However, in the longer term, OPEC cut its forecast for global oil demand for the 2026-2029 period due to slowing Chinese demand, the group said Thursday in its World Oil Outlook 2025.

Both benchmark futures contracts fell more than 2% on Thursday as investors worried about the impact of US President Donald Trump's evolving tariff policies on global economic growth and oil demand. "Prices recovered from these losses after President Trump said he planned to make a 'big' statement on Russia on Monday. This could raise market concerns about the potential for further sanctions against Russia," ING analysts wrote in a client note.

Trump has expressed frustration with Russian President Vladimir Putin over the lack of progress in ending the war in Ukraine and Russia's escalating bombing of Ukrainian cities. The European Commission will propose floating oil price caps for Russia this week as part of a new draft sanctions package, but Russia says it has "good experience" in addressing and minimizing such challenges. (alg)

Source: Reuters