Oil prices increase in Asian trade, set for third weekly gain

Oil prices rose in Asian trade on Friday and were poised for a third straight weekly jump, buoyed by growing expectations that the US central bank will soon start to cut interest rates and firm complex refining margins.

Brent crude futures for August settlement, which expire on Friday, rose 48 cents, or 0.56% to $86.87 a barrel by 0620 GMT. The Brent contract for September was up 0.53% at $85.71 a barrel.

US West Texas Intermediate crude futures for August delivery rose 52 cents, or 0.64%, to $82.26 a barrel.

Brent and WTI futures have gained nearly 2% so far this week, with both benchmarks also on track for gains of slightly more than 6% month on month.

"Crude oil edged higher despite weak near-term fundamentals," said ANZ analysts, referring to unexpected gains in US crude inventories despite expectations of a drawdown during the summer peak demand.

"... prices gained amid a risk-on tone across broader market ... triggered by data that signalled further US labour market weakness," they added in a client note.

Growing expectations of an imminent Fed easing cycle have sparked a risk rally across stock markets. Traders are now pricing in a 64% chance of a first Fed cut in September, up from 50% a month ago, according to the CME FedWatch tool.

Easing interest rates could be a boon for oil as it could increase demand from consumers.

A recovery in physical refining margins also buoyed markets, with the Singapore complex refining margins averaging $1 higher in June, from May, at around $3.60 a barrel.

"... Heading to 3Q, we expect refining margins to remain around current levels. We expect gasoline to continue rising through to August, though this will be offset by diesel cracks, which are expected to ease amid lengthening East of Suez balances," said Ivan Mathews, head of Asia refining at FGE.

Capping gains was cautiousness on fluctuations in the US dollar, which is at a two-month high, and political uncertainty in France that have a knock-on effect on oil demand.

"The downside risk factor at play is related to USD volatility, bearing in mind the US core PCE inflation that is due later today," said OANDA senior market analyst Kelvin Wong in an email.

Oil prices may face the risk of short-term profit taking at the start of next week if first round results of the French legislative election on June 30 show lower public support for a far-right group pushing for a halt to green energy development, he added.