On Monday, Brent crude edged close to $86 per barrel, propelled by escalating conflicts in Eastern Europe and the Middle East that have heightened concerns over global oil supplies.
By midday GMT, Brent crude futures had ascended by 40 cents, reaching $85.83 a barrel, while U.S. crude futures experienced a similar uplift, rising 40 cents to $81.03.
This year has witnessed a consistent rise in oil prices, with Brent increasing by nearly 11% and West Texas Intermediate (WTI) by approximately 12.5% as of the end of last week. The market’s optimism is partly fueled by expectations that the looming recession could be mitigated, with a potential decrease in interest rates in key economies anticipated by summer. Furthermore, the OPEC+ alliance has decided to maintain supply restrictions into the upcoming quarter, adding to the upward pressure on prices.
Hiroyuki Kikukawa, President of NS Trading, highlights that the intensified attacks on energy infrastructure in Russia and Ukraine, coupled with diminishing prospects for peace in the Israel-Hamas conflict, are central to the growing supply concerns.
Recent developments include a significant disruption at a Russian oil refinery, attributed to a drone strike that reportedly halved its production capacity. This incident adds to a series of Ukrainian strikes targeting Russian facilities this month.
In Ukraine, recent Russian assaults on power infrastructure resulted in widespread outages, underlining the conflict’s direct impact on energy supply lines.
The situation in the Middle East remains tense, with Israeli military actions continuing in Gaza, despite efforts by Qatar and Egypt to mediate a ceasefire. Additionally, U.S. forces intercepted drones aimed at a Chinese-owned oil tanker in the Red Sea, further illustrating the global scope of geopolitical tensions affecting oil supply chains.
Oil demand projections for 2024 have seen slight increases, buoyed by a continued economic rebound post-pandemic. However, OPEC’s decision to keep its supply cuts intact presents a buffer against potential shortages. According to Tamas Varga from oil brokerage PVM, this strategic reserve is a critical factor in tempering expectations for a sustained price rally beyond $90 per barrel.
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