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Crude prices hit 7-month highs on Fri, jumping as much as 7% on the week, responding to growing market conviction that Saudi Arabia will extend in Oct its voluntary monthly production cut of 1 m bpd introduced in July.

Adding to that was data showing better-than-expected U.S. jobs growth in Aug despite a rise in unemployment, with the Labour Department reporting 187,000 new non-farm payrolls versus a forecast 170,000 and a jobless rate of 3.8% from July's 3.5%. The jobs numbers, at the least, "signal interest rates may not rise any further", something all risk assets seemed to take positively, said Craig Erlam, analyst at OANDA.

On the oil production front, the Saudis hinted at the Oct cut a month ago, saying they could even be deeper than before if warranted - a threat ostensibly aimed at short-sellers who might try to take prices down. While they have yet to make it official, the Russians, who happen to be the Saudis' main ally in OPEC+, did both their sides a favour this week by saying more "actions" were coming in the way of the oil market.

The Russian disclosure came after data on Wed showed U.S. crude stockpiles tumbling a 3rd week in a row as refiners ramped up fuel processing to meet demand ahead of Mon's Labour Day holiday - which marks the last hurrah for summer travel each year.

With two days of back-to-back gains of 2% or more, Brent crude settled Fri's trade up 2% at USD88.55. For the week, Brent rose 4.8%. That was after a combined 2.3% drop over 2 weeks as the economy in China sputtered. Prior to that, the global crude benchmark rose for 7 weeks in a row, gaining a total of 18%.

WTI crude settled Fri's trade up 2.3% at USD85.55. Week-to-date, it finished up 7.2%. That was after a combined 4% drop over 2 prior week . Prior to that, WTI gained 20% over 7 weeks.

With the oil rally having resumed earnestly, the upside in crude prices could last in the interim with OPEC likely to make more rumblings to try and get Brent to the Saudi's cherished target of USD90 or more.

But with U.S. road travel seen easing hereafter and the oil market typically entering a seasonal low in demand during the fall season starting Sep. 23, the market could start feeling heavy without a commensurate downside adjustment.

"Demand is always a bigger proponent than supply and eventually it'll show if it's weak," said John Kilduff, partner at Again Capital. "China is still not buying enough and Iran is exporting more and more oil to to challenge the hyped up tight supply picture that's hijacked the market narrative now."

U.S. crude oil stocks have fallen to their lowest level this year and likely will shrink further, analysts said, as record demand, producer supply cuts, weaker futures and rising storage costs all point to increasing drawdowns.

A tight crude market is poised to extend into 2024 and add upward pressure on global oil prices, they said. In a bullish sign, U.S. inventories last week dropped 10.6 m barrels, hitting the lowest level since Dec 2022's 420.65 m barrels.

"We are already around 2022's close and I don't think we are getting a build in the second half of the year," said Al Salazar, a senior vice president at energy technology firm Enverus. "USD100 a barrel (for Brent crude) is definitely within striking range."

World demand is poised to hit a record high this year on strong air travel, power generation needs and surging Chinese petrochemical activity, the IEA forecast in August. Demand could grow this year by 2.2 m bpd to 102.2 m bpd.

Oil supply will not match the rise in demand, the IEA said, adding it expects output to rise by 1.5 m bpd. Supply has fallen after Saudi Arabia voluntarily cut output in recent months and is likely to outweigh increases in U.S. shale and by Iran and Venezuela.

Overall, U.S. oil production could average 12.8 m bpd in 2023, but analysts are skeptical that shale gains can be sustained without a sharp increase in drilling activity. Active U.S. oil rigs this month fell to the lowest since February 2022.

Near-term U.S. oil prices also are higher than futures, which has further encouraged withdrawals from inventory. U.S. crude for delivery in Oct recently traded about USD6 higher than for delivery 12 months out.

Even when 6-month futures in late July briefly rose above those for Oct delivery, U.S. stocks fell as central bankers raised interest rates, lifting costs to buy and store oil.

"It's going to be pretty difficult to incentivize that storage," said Christopher Haines, an analyst at Energy Aspects.

Prices of crude for future deliveries need to trade at least USD0.50 above Oct prices before it is profitable to store crude, said Ernie Barsamian, chief executive of terminal storage clearinghouse The Tank Tiger.

That compares with estimates of USD0.10- USD0.20 when interest rates hovered around 1%.

"We are likely moving to a new normal of lower inventory forward cover," analysts at Energy Aspects wrote in a note.