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  • Brent crude surpasses $90 mark as OPEC+ tightens noose on production cut

    Brent crude surpasses $90 mark as OPEC+ tightens noose on production cut

    A combination of rising geopolitical risk and supply disruptions has pushed oil prices higher, with Brent crude closing last week trading at $91 per barrel.

    Aided by a whirlwind of bullish news, Brent prices surpassed the $90 per barrel threshold and surged past the $91 per barrel mark on Friday morning.

     The anticipation of Iran’s retaliatory strike on Israel, a developing Mexico export shortage, and the continuation of OPEC+ cuts have boosted sentiment in the oil market. The West Texan Intermediate (WTI) also experienced a surge, closing in on $86.73 per barrel, thereby following in the steps of the Brent’s current bullish trend.

    The last time that Brent settled above $90 per barrel was on October 27, 2023, and with OPEC widely expected to maintain its conservative stance, it is not that difficult to imagine Brent surging higher again.

    International oil analysts at oilprice.com submitted that this trend, driven by a mix of geopolitical tensions and economic factors, is pivotal in determining the future direction of oil prices. The surge in WTI crude oil prices, they said, is primarily due to escalating geopolitical unrest in the Middle East, especially tensions involving Israel and Iran. Such conflicts often lead to uncertainties in oil supply, thereby influencing global oil prices. This situation has directly contributed to the upward movement of WTI prices.

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    “This upward trend in Brent, a global oil benchmark, has directly influenced WTI prices. The close correlation between these two benchmarks means that trends in Brent often have a similar effect on WTI, as seen in the current market situation,” analysts said.

    In the early days of the past week, energy stocks began to outperform the wider stock market as Brent crude began its steady upward movement on Tuesday at $89 per barrel, with energy leading the S&P 500’s eleven market sectors last month following a 10 per cent rise.

    The oil markets are anticipating the OPEC monitoring meeting on April 3, looking for potential clues on the directionality of pricing, with JPMorgan already predicting Brent to be in the $90s by May on Russia’s production cuts.

    Besides, the ongoing tightness in refined products saw refiners outperforming pure upstream-focused companies by some five percentage points as the Red Sea shipping disruptions and refinery drone strikes in Russia kept supply restricted.

    According to reports by Reuters, at a meeting of top OPEC+ ministers last Wednesday, the organisation kept oil supply policy unchanged and pressed some countries to increase compliance with output cuts, a decision that spurred international crude prices to their highest in five months.

    “OPEC+ decided to stick with oil supply cuts for the first half of the year, keeping global markets tight and potentially sending prices higher,” said Saxo Bank’s Ole Hansen.

    OPEC+ members, led by Saudi Arabia and Russia, last month agreed to extend voluntary output cuts of 2.2 million barrels per day (bpd) until the end of June to support the market.

    In a statement following last Wednesday’s meeting, OPEC+ said some countries had promised to improve their adherence to targets.

    The panel welcomed pledges from Iraq and Kazakhstan to achieve full conformity as well as to compensate for overproduction, and Russia’s announcement that its cuts in the second quarter will be based on production not exports, the statement said.

    Iraq hopes to host Gulf Arab monarchs and other Middle Eastern emissaries in the hotel’s 470 luxury rooms and suites when they arrive for a planned Arab League summit next year.

    “Participating countries with outstanding overproduced volumes for the months of January, February and March 2024 will submit their detailed compensation plans to the OPEC Secretariat by 30 April 2024,” the statement said.

    Russian Deputy Prime Minister Alexander Novak said on Wednesday Russia was in full compliance with its commitments to reduce oil supplies as part of the OPEC+ deal.

    Data from S&P Commodity Insights, known as Platts, showed the group overproduced by a net 275,000 bpd in January and by 175,000 bpd in February. Platts is one of the secondary sources used by OPEC+ to assess its members’ production.

    Gabon, Iraq and Kazakhstan were the main members that produced above their quotas for the two months, the survey said.

    Iraq last month promised to lower exports to make up for pumping above its OPEC target, a pledge that would cut shipments by 130,000 bpd from February.

    When the voluntary curbs expire at the end of June, the total cuts by OPEC+ are set to decline to 3.66 million bpd as agreed in earlier steps starting in 2022.

    OPEC production declined to 26.42 million b/d in March, down 50,000 b/d compared to February, and the oil group is expected to see lower output in April still as Iraq vowed to offset its lack of compliance.

  • Brent crude price heads to $100 a barrel

    Brent crude price heads to $100 a barrel

    Global oil benchmark Brent crude neared $95 a barrel on Monday, with investors focused on the prospect of a widening supply deficit in the fourth quarter after Saudi Arabia and Russia extended supply cuts. Brent crude futures rose 79 cents to $94.72 a barrel, while U.S. West Texas Intermediate crude futures were up $1.24 at $92.01.

    Brent and WTI have climbed for three consecutive weeks to touch their highest since November and are on track for their biggest quarterly increases since Russia’s invasion of Ukraine in the first quarter of 2022.

    “The price is buoyed by expectations of a widening supply deficit in the coming quarters as Saudi Arabia and Russia will extend oil production cuts to the end of the year and amid optimism surrounding the demand outlook in China, the world’s largest oil importer,” said Fiona Cincotta, Senior Financial Markets Analyst, City Index, a trading services provider.

    Citi Bank had predict that Brent prices could exceed $100 a barrel this year. Chevron Chief Executive Mike Wirth also said he thinks oil will cross $100 per barrel in a Bloomberg News interview. Saudi Arabia and Russia this month extended a combined 1.3million barrels per day of supply cuts to the end of the year.These curbs could push the market into a 2 million bpd deficit in the fourth quarter and a subsequent drawdown in inventories could leave the market exposed to further price spikes in 2024, ANZ analysts said.

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    Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman on Monday defended OPEC+ cuts to oil market supply, saying international energy markets need light-handed regulation to limit volatilityThere was ongoing uncertainty about Chinese demand, European growth and central bank action to tackle inflation, he added.

    The question is whether the cuts will continue into next year, Callum Macpherson, head of commodities at Investec, said, “given the risk that higher prices must surely, at some point, stimulate US shale (oil output)”. Either way, demand concerns remain. China, considered the engine of oil demand growth, is a key risk because of its sluggish post-pandemic economic recovery, though its oil imports have remained robust. A series of stimulus measures and a summer travel boom helped industrial output and consumer spending to rebound last month and refineries  ramped up output, driven by strong export margins. “Lack of protracted (economic) progress, nonetheless, will be viewed as a major setback on the demand side,” said Tamas Varga of oil broker PVM.

    “What’s striking is that this relentless oil price rally has taken place even amid concerns about lower demand from Europe and China as those economies grapple with a severe slowdown, which demonstrates just how tight the supply side of the equation has become,” said Marios Hadjikyriacos at broker XM. Eyes will also be on central banks this week, including an interest rate decision from the U.S. Federal Reserve. There is growing consensus that peak interest rates are not far away as inflationary pressure, in general, has been successfully mitigated, PVM’s Varga said. “Investors, however, remain puzzled over when central banks will start cutting them,” he said. “The high-for-longer mantra would ultimately have a negative impact on economic growth and would affect oil demand.”