HOUSTON (Reuters) – Oil prices climbed on Thursday, reaching four-month highs, as the International Energy Agency (IEA) revised its outlook, signaling a tighter market in 2024 and predicting increased oil demand growth for this year.

Brent crude oil futures for May rose by $1.39, or 1.7%, settling at $85.42 a barrel, marking the highest close since November 6.

U.S. West Texas Intermediate (WTI) crude for April also saw an increase of $1.54, or 1.9%, ending at $81.26, reaching its highest level since early November.

The IEA raised its projection for 2024 oil demand growth for the fourth time since November, citing disruptions in Red Sea shipping due to Houthi attacks. However, it cautioned that the global economic slowdown poses an additional challenge to oil usage.

The energy watchdog now anticipates demand to rise by 1.3 million barrels per day in 2024, an increase of 110,000 barrels per day from the previous month, although still below the growth of 2.3 million barrels per day seen last year.

In addition, the IEA revised its 2024 supply forecast downward, expecting oil supply to increase by 800,000 barrels per day to 102.9 million barrels per day this year.

“Demand remains robust, while supplies are tightening, especially in the fuel sector. Strong refining margins are also supporting crude demand,” commented Dennis Kissler, Senior Vice President of Trading at BOK Financial.

The 3-2-1 crack spread, a measure of refining margins, surged to its highest level since mid-September on Wednesday, incentivizing increased crude processing.

Meanwhile, Ukrainian drone strikes targeted Russian refining facilities for a second consecutive day, hitting four major oil refineries. Russia’s energy ministry reported a 1.5% decrease in seaborne fuel exports from the previous month in February due to refinery disruptions caused by Ukrainian drone attacks and fires.

These refinery damages could potentially reduce Russian gasoline production by over 10%, according to Kissler.

In the U.S., both crude and gasoline inventories experienced significant declines last week, as indicated by government data released on Wednesday. Major refinery outages have resulted in reduced supplies ahead of the summer driving season, leading to expectations of higher pump prices in the coming weeks.

Traders are now assessing a 63.5% likelihood of the Federal Reserve cutting rates in June, down from 67% prior to the latest data release. Lower interest rates can stimulate economic growth and increase demand for oil by reducing consumer borrowing costs.

The near-term growth in global oil and liquids production will primarily be driven by the United States, Guyana, Canada, and Brazil, offsetting voluntary production cuts by OPEC+, according to forecasts by the U.S. Energy Information Administration on Thursday.

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