Oil Struggles on Concerns About Too Much Supply

Oil prices were flat on Friday, as concerns over supply continue to outweigh the more positive news on demand.

Brent crude, the global benchmark, was up 0.02% at $48.43 a barrel, in London midmorning trading. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 0.07%, at $46.05 a barrel.

Brent had settled up 1.3% on Thursday after the International Energy Agency, in its closely watched monthly report, said it now expects global demand to rise by 1.5% this year, to 98 million barrels a day. The Paris-based adviser to governments and companies raised its 2017 demand forecast by 100,000 barrels a day, compared with a previous estimate last month, while predicting "similarly paced" growth for next year.

But many investors remain more focused on the continuing global glut, analysts say, and this should continue to hold back prices. In its report, the IEA also noted that output in June had increased from the Organization of the Petroleum Exporting Countries and other producers such as the U.S.

The market is only "a little bit more balanced," said Tom Pugh, a commodities economist at Capital Economics. "We have gone from extremely bearish to quite bearish," he added.

OPEC crude output hit its highest level in 2017 at 32.6 million barrels a day, driven by Libya, Nigeria and Saudi Arabia, the IEA said, complicating the cartel's efforts to curb production.

OPEC last year teamed up with 10 other big producers outside the cartel--including Russia--to cut production through March by roughly 1.8 million barrels a day from the record high levels reached last October.

There is a "growing consensus that there is no strong element of support to drive prices higher over the next year," analysts at JCB Energy wrote in a note Friday.

The IEA's more robust demand outlook is supported by China's endless thirst for foreign crude. In the first half of 2017, it imported an average 8.6 million barrels a day, 18% more than the start of last year. The country has become the world's leading energy importer, followed by the U.S.

China market watchers say the uptrend should persist as the government aims to expand its strategic petroleum reserve.

"It is hard to draw a conclusion that the bull market is back, but recent trends suggests the market is tightening--even though at a slower pace than previously thought," said Grace Liu, the head of petrochemical research at Guotai Junan.

A potential market mover later Friday will be the weekly U.S. rig-count data from Baker Hughes. The report is widely used to gauge future U.S. production.

There is a growing view that even though U.S. output could hit 10 million barrels a day by 2018, room for growth is limited and production will soon peak, said Li Li, the head of research at ICIS China. Unless demand growth sees a significant jump the next few years, she said softening margins would likely deter U.S. producers from expanding further.

Nymex reformulated gasoline blendstock--the benchmark gasoline contract--was down 0.30%, to $1.5008 a gallon. ICE gasoil changed hands at $441.50 a metric ton, down 0.39% from the previous settlement.