Oil settles 1% higher on Middle East crisis yet posts weekly loss on bearish demand outlook; Brent at $90/bbl

Brent crude futures settled up 71 cents at $90.45 per barrel, while US West Texas Intermediate (WTI) crude futures rose 64 cents to $85.66. For the week, Brent declined 0.8 per cent, while WTI dropped more than one per cent. Coming to domestic prices, crude oil futures settled 0.04 per cent higher at ₹7,190 after hitting an intra day high of ₹7,322 on the multi commodity exchange.

Also Read: US inflation beats Wall Street estimates, rises 0.4% in March; Fed’s June rate cut hopes fade away

What’s driving crude oil prices?

-The IEA cut its forecast for 2024 world oil demand growth to 1.2 million barrels per day (bpd). The Organisation of Petroleum Exporting Countries (OPEC) said on Thursday that the world oil demand will rise by 2.25 million bpd in 2024. Analysts said that for now the market is mostly in the OPEC demand camp as opposed to the IEA’s reduced forecast. 

-During the week, oil prices neared a six-month high on concern that Iran, the third-largest OPEC producer, might retaliate for a suspected Israeli warplane attack on Iran’s embassy in Damascus.

-Analysts noted that the market’s main focus is on whether Iran will retaliate against Israel, with the fear of supply disruption associated with the events in the Middle East supporting prices. The US expects an attack by Iran against Israel but one that would not be big enough to draw itself into war. Tehran has signaled a response aimed at avoiding major escalation.

-Supply chain issues still carry the biggest risk premium as Iran maintains its threat to shut the Suez Canal, said economist at Matador Economics. Friday’s gains erased the previous session’s losses, which were dominated by stubborn US inflation that dampened hopes for an interest rate cut as early as June.

-Higher interest rates can weaken economic growth and depress oil demand. US energy firms this week cut the number of oil rigs operating for a fourth week in a row, energy services firm Baker Hughes said in its report. The oil and gas rig count, an early indicator of future output, fell by three to 617 in the week to April 12, the lowest since November.

Also Read: Oil traders stay bullish as Brent hovers at $90: ‘Crude to stay elevated even if Middle-East tensions cool down’

Where are prices headed?

Oil market analysts said that the weekly decline is attributed to a buildup in US crude oil inventories, which rose to 5.84 million barrels last week, the highest level since July 2023, raising concerns about demand. 

The IEA has lowered its demand forecast due to sluggish economic growth and rising electric vehicle (EV) demand, trimming estimates by 0.13 mbpd to 1.2 mbpd—one million barrels per day less than OPEC’s expectations. 

‘’The IEA predicts a significant supply buffer of six mbpd, driven by robust non-OPEC supply and slowing demand. However, near-term geopolitical risks, such as the potential for Iran to launch missiles on Israel, could provide a downside cushion to crude oil prices, with WTI crude oil prices projected to reach warningly high levels of $87-$89,” said Riya Singh – Research Analyst, Commodities and Currency Desk, Emkay Global.

Also Read: Expert View | Oil market oversupplied with high US output, Brent seen at $87-$92 for 2024: ShareKhan’s Mohammed Imran

The dollar index breached the 105 threshold, exerting pressure on crude oil prices. Escalating tensions in the Middle East following Iran’s threat to retaliate against Israel could provide some support to crude oil prices at lower levels, added analysts.

‘’With global supply already constrained due to OPEC+ output cuts, this geopolitical tension could further bolster prices. Support for crude oil stands at $84.50–83.90, with resistance projected at $85.90-86.60. In Indian Rupees, crude oil is supported at Rs7,020-6,930, while resistance lies at Rs7,190-7,280,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 13 Apr 2024, 06:35 PM IST