Investing.com — Oil prices settled lower Friday, but still notched their first weekly gain in two months as the expectations of U.S. rate cuts next year boosting the economy and crude demand forced the bears to loosen their grip. 

By 14:30 ET (19.30 GMT), the futures settled 0.2% lower at $71.43 a barrel and the contract rose 0.2% to $76.75 a barrel.

U.S. rate cut optimism boosts energy demand outlook

Dovish signals from the Fed have been a key support for commodity markets including energy this week, as the central bank signaled deeper-than-expected rate cuts in 2024. New York Fed President John Williams attempted to push back against sooner rather later rate cuts on Friday, saying rate the Fed isn’t “really talking about rate cuts right now.”

Still, the potential of deeper rate cuts is expected to cushion the economy against possible slowdown, keeping demand for crude intact in U.S., the largest consumer of crude in the world, at time when record U.S. production has stoked excess supply concerns and weighed on sentiment. 

“We’re actually producing more oil in the U.S., as a result of energy prices being where they are,” Sean O’Hara, president of Pacer ETFs told Investing.com’s Yasin Ebrahim in an interview on Friday.  

While excess supply or an severe economic downturn could pressure oil prices, O’Hara said, there is still a need to refill the Strategic Petroleum Reserve in Cushing, Oklahoma, which are at “the lower end of capacity.”

China economic struggles still a worry

China, the largest importer of crude, continues to face a bumpy economic recovery as data showed consumer and investment spending increased at slower than expected pace.

The ongoing struggles have fueled concerns that Beijing have to roll out further stimulus to keep its economic recovery on track. 

For 2024, Oil demand in China is the “biggest unknown”, Louise Dickson, an analyst at Rystad Energy told Bloomberg in a recent interview, estimating about 600,000 barrels per day of oil demand growth out of China for next year. But the bulk of that depends on “how the economy performs,” Dickson added. 

IEA lifted 2024 oil demand forecast

The helped the market earlier this week by slightly lifting its oil demand forecast for 2024. But the IEA’s forecast for demand was still much lower than that suggested by the Organization of Petroleum Exporting Countries and allies, a group known as OPEC+.

Underwhelming production cuts from the cartel group were a key weight on oil in recent weeks, driving prices to over five-month lows. Even with a positive demand outlook for 2024, crude markets are still expected to remain well supplied.

This was also in part due to strong U.S. production, with recent data showing that total U.S. output remained close to record highs in the past week. U.S. inventories saw a bigger-than-expected drawdown, although fuel demand in the country remained weak, with gasoline inventories seeing a mild build.

(Peter Nurse, Ambar Warrick contributed to this article.)