Oil prices soared by approximately 2% to reach a four-month peak on Monday, propelled by diminished crude exports from Iraq and Saudi Arabia, coupled with indications of robust demand and economic expansion in both China and the United States.
Brent futures experienced a $1.55 surge, or 1.8%, settling at $86.89 per barrel, while U.S. West Texas Intermediate (WTI) crude climbed by $1.68, or 2.1%, settling at $82.72.
This surge led both benchmarks into technically overbought terrain, with Brent achieving its highest settlement since October 31, and WTI reaching its highest point since October 27.
In parallel markets, U.S. gasoline futures concluded at their highest levels since August 31.
On the supply front, Iraq, the second-largest producer within the Organization of the Petroleum Exporting Countries (OPEC), declared its intention to curtail crude exports to 3.3 million barrels per day (bpd) in forthcoming months. This measure aims to offset its OPEC+ quota breaches since January, potentially reducing shipments by 130,000 bpd compared to the previous month.
During January and February, Iraq notably exceeded its output target established in January when OPEC+ members, along with allies like Russia, agreed to stabilize the market.
Conversely, Saudi Arabia, OPEC’s principal producer, experienced a second consecutive monthly decline in crude exports, falling from 6.308 million bpd in December to 6.297 million bpd in January.
Meanwhile, in Russia, assaults on energy infrastructure by Ukraine have incapacitated around 7% of refining capacity in the first quarter, according to a Reuters analysis.
Market analysts predict that refinery shutdowns will prompt Russia to escalate oil exports through its western ports in March, by nearly 200,000 bpd, reaching around 2.15 million bpd.
In the United States, oil production from leading shale-producing regions is set to ascend in April, hitting the highest level in four months, according to a federal energy outlook.
Signals of Ascending Demand
In China, the world’s preeminent oil importer, factory output and retail sales surpassed expectations during the January-February period, inaugurating a promising start to 2024. These positive indicators provide some solace to policymakers, notwithstanding persisting weaknesses in the property sector, which continue to impede economic progress and confidence.
“Crude oil is up… today, with demand for crude from China continuing to be a dominant factor,” stated analysts at energy consulting firm Gelber and Associates in a note.
China’s crude oil throughput in January and February climbed by 3% compared to the same period last year, as refineries escalated production to meet robust demand for transport fuels during the busy Lunar New Year travel season.
In the United States, the Federal Reserve (Fed) is widely anticipated to maintain interest rates at their current level as it concludes its latest two-day policy meeting on Wednesday.
Higher-than-expected economic growth and persistent inflation in the United States this year have prompted investors to postpone expectations of the Fed’s inaugural rate cut to June, from May, and to temper projections regarding the number of anticipated cuts this year.
Reduced interest rates could alleviate the cost of purchasing goods and services, potentially bolstering economic expansion and fueling oil demand.
In a move expected to amplify oil demand, U.S. Energy Secretary Jennifer Granholm disclosed that crude oil inventories in the Strategic Petroleum Reserve (SPR) at year-end will either meet or exceed levels that existed prior to massive sales two years ago.
Additionally, in other U.S. developments anticipated to bolster oil demand, BP’s 435,000 bpd Whiting refinery in Indiana has resumed normal operations for the first time since a February power outage.