Oil Rallies on Positive Demand Expectations
Oil prices increased on Tuesday with greater supply risks with the rising conflict in the Middle East, while investors await several key supply and demand data sets from the Organization of Petroleum Exporting Countries (OPEC) as well as inflation data from the US Federal Reserve (Fed).
Brent crude price rose by 0.48% to $82.61 per barrel. The American benchmark West Texas Intermediate (WTI) traded at $78.25 per barrel at the same time, a 0.41% rise from the previous session that closed at $77.93 per barrel.
Recent data from the Energy Information Administration (EIA) shows that the average crude oil production in the US reached a record high of 12.9 million barrels per day (mbpd) in 2023, leading global oil production growth for a sixth consecutive year.
In a note, ING said thus has surpassed its previous record of 12.3 mbpd reached in 2019. The EIA further added that the monthly oil production in the country also hit a new record of over 13.3 mbpd in December 2023.
The administration believes that it would be difficult for any other major oil-producing country to surpass the record, at least in the near term.
Early this year, Saudi Arabia’s government ordered Aramco to halt its oil expansion plan and to target a maximum sustained production capacity of 12 mbpd, 1 mbpd below the target announced in 2020.
Analysts said the European gas market fell over 5.5%, with the TTF front-month contract closing just below EUR25/MWh yesterday. This was the lowest close since the start of the month.
The gas market in the country has been trading under pressure for quite some time now amid mild weather and subdued demand. The latest weather forecasts suggest that temperatures across Europe are expected to remain warmer than usual until the end of the heating season.
At the same time, European gas storage is a little more than 60% full now, showing no signs of shortage and less difficulty for the refill this season. Assuming no major supply shocks, this suggests we should see more downside in natural gas prices before the start of the summer months.
Oil prices rose in early Asian trade on Tuesday following US and British airstrikes on Yemen’s coastal province of Al Hudaydah on Monday.
Subsequently, the Houthi group declared that it considered all American and British ships legitimate military targets.
As the Red Sea is one of the world’s most frequently used sea routes for oil and fuel shipments, the escalating tension in the region between the joint forces of the UK and US against the Houthi group raised supply fears and placed upward pressure on oil prices.
The Houthis state their attacks aim to pressure Israel to halt its deadly onslaught on the Gaza Strip, which has killed more than 30,800 people and injured over 72,200 others since an Oct. 7 cross-border offensive by the Palestinian group Hamas.
Investors are additionally focused on the upcoming monthly oil market reports.
The OPEC and the Energy Information Administration (EIA) will release related reports later on Tuesday, while the International Energy Agency (IEA) report will come online on Thursday.
“While we believe the estimates will be largely unchanged, any upside surprise will ease demand concerns,” according to Daniel Hynes, a commodity strategist at Australia and New Zealand Banking Group.
Ahead of the Fed’s announcement late Tuesday of key inflation statistics, investors are taking a cautious stance. While uncertainties continue as to when the Fed will start interest rate cuts, experts predict that Tuesday’s inflation data may provide investors with clues about the bank’s future steps. #Oil Rallies on Positive Demand Expectations
