Oil prices rise about $1/bbl on prospect of subdued U.S. rate hikes

© Reuters. FILE PHOTO: Crude oil storage tanks are seen from above at the Cushing oil hub, in Cushing, Oklahoma, March 24, 2016. REUTERS/Nick Oxford

By Laila Kearney

NEW YORK (Reuters) -Oil prices rose about $1 a barrel on Friday after the U.S. Federal Reserve signalled a more subdued rate hike path that helped to ease fears about an economic slowdown that would weaken crude demand.

Brent crude futures gained 96 cents, or 1%, to $97.55 a barrel by 12:20 p.m. EDT (1620 GMT). U.S. West Texas Intermediate crude was up 1.24, or 1.4%, at $90.52 a barrel.

Both benchmark contracts were headed for weekly losses of less than 1%.

U.S. central bank officials have "a lot of time still" before they need to decide how large an interest rate increase to approve at their September policy meeting, Richmond Federal Reserve President Thomas Barkin told reporters nL1N2ZV147 on the sidelines of a conference.

The Fed is now balancing the its rate hike path with uncertainty over any impact on the economy, Barkin also said.

"With the Fed's signalling that they're going to more reactive, like Barkin said, that allows for economic activity to hold at a higher level than it otherwise would have and translate into better demand prospects for oil," said John Kilduff, a partner at Again Capital LLC.

Haitham Al Ghais, the new secretary general of the Organization of the Petroleum Exporting Countries, told Reuters he was optimistic about oil demand into 2023.

OPEC is keen to ensure Russia remains part of the OPEC+ group, Al Ghais said ahead of a Sept. 5 meeting.

Supplies could tighten again when European buyers start seeking alternative supplies to replace Russian oil ahead of European Union sanctions that take effect from Dec. 5.

"We calculate the EU will need to replace 1.2 million barrels per day of seaborne Russian crude imports with crude from other regions," consultancy FGE said in a note.

Data earlier this week showed U.S. crude inventories fell sharply as world's top producer exported a record 5 million barrels of oil a day last week, with oil companies finding demand from European nations looking to replace Russian crude. [EIA/S]

Putting a ceiling on rising prices, in a sign of easing oil supply tightness, the price gap between prompt and second-month Brent futures has narrowed by about $5 a barrel since the end of July to under $1.

"Global recession and demand destruction are front and centre of current concerns given weak data out of the U.S., euro zone and China. Signs of slowing economic growth are pervasive and could dent oil demand," PVM analysts said.