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Oil prices have surged to a 4-month high, with analysts anticipating a potential crossing of the $90 per barrel threshold, buoyed by a convergence of multiple factors favouring a bullish outlook for oil.
Both benchmark oil prices have surpassed the $86 per barrel mark, marking a significant uptick. This recent rally follows intensified attacks by Ukraine on Russian oil infrastructure, specifically targeting at least seven refineries with drones this month. These attacks have resulted in the shutdown of approximately 7 percent of Russian refining capacity, equivalent to about 370,500 barrels per day.
Energy experts predict that the refinery closures will prompt Russia to ramp up oil exports through its western ports in March by nearly 200,000 barrels per day, reaching around 2.15 million barrels per day.
Compounding this disruption is decreased output from Iraq and Saudi Arabia. Iraq, the second-largest producer in OPEC, is scaling back crude exports to 3.3 million barrels per day to offset its overuse of the OPEC+ quota since January. The country had committed to reducing shipments by 130,000 barrels per day from the previous month.
Certain OPEC+ nations led by Saudi Arabia have voluntarily extended their production cuts until the end of June. Additionally, the impending imposition of US sanctions on Venezuela from April onwards adds to the supply-side woes. Venezuela had a 6-month window to export oil, which Indian private refiners capitalised on by securing nearly 50 percent of the country's exports. This window will probably close from April onwards, adding to supply-side pressure.
Beyond the supply-side constraints, a demand-driven push is expected to raise oil prices. China, the world's largest oil importer, has witnessed a significant uptick in demand. Despite underwhelming performance in the real estate sector, factory output and retail sales in China exceeded expectations during January-February.
Reports indicate that China's oil demand is projected to increase by 6.1 percent in 2024. Moreover, China's crude oil throughput in January and February saw a 3 percent rise compared to the same period last year, as refineries boosted production to meet heightened demand for transport fuels during the Lunar New Year travel season.
Furthermore, demand from the US is on the rise, with experts no longer anticipating a recession. A robust recovery in US single-family homebuilding in February underscores strong economic growth and potentially heightened energy demand. The US Federal Reserve is expected to maintain interest rates unchanged and temper speculations regarding the number of rate cuts anticipated this year.
However, the surge in oil prices brings the threat of rising inflation. Beyond the supply-side issues concerning crude, there are broader concerns regarding distillates. Russia's 6-month ban on petrol exports amidst escalating local demand exacerbates these concerns.
US gasoline futures are poised to close at their highest level since September 2023 for the fourth consecutive day. The convergence of supportive factors from both the supply and demand sides has led some analysts to anticipate oil prices reaching the psychological threshold of $100 per barrel.
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Technical Picks: Aluminium, Hindustan Unilever, Dixon, NMDC and Wipro (These are published every trading day before markets open and can be read on the app). A Message from The Fixed Income
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Event alert: Moneycontrol and CNBC TV18 are hosting the ultimate event on artificial intelligence, bringing together entrepreneurs, ecosystem enablers, policymakers, industry leaders, and innovators on March 27th in Pune. Click here to register and gain access to the AI Alliance Pune Chapter.
Shishir Asthana
Moneycontrol Pro
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