The recent surge in oil prices nearing $80 can be attributed to a variety of market signals indicating robustness. This uptrend comes as the OPEC+ alliance deliberates an extension of their supply cut policy into the next quarter. These discussions are scheduled for early this month, and the decision could significantly impact global oil markets.
In the U.S. market, there's been a noticeable uptick in crude oil futures, specifically a 2% increase. This rise is closely associated with the growing prompt spreads for key benchmarks like Brent and West Texas Intermediate. These spreads are important indicators of the tightness in physical oil markets.
A contributing factor to this situation is the large number of oil tankers that are now bypassing the Red Sea, a strategic route for oil transportation. This shift in shipping patterns is a direct response to the recent attacks in the region, believed to be carried out by Yemen's Houthi militants as we read in Bloomberg.
February marked a continuation of the increasing trend in oil prices, recording a second consecutive month of gains. However, it's important to note that these price increases have been contained within a relatively limited range.
A significant factor behind this upward trend in oil prices is the ongoing geopolitical tension, exemplified by the conflict between Israel and Hamas. A recent spike in violence, particularly a serious incident on a Thursday, resulted in numerous casualties among Palestinians, and this has had a ripple effect on the global oil markets.
The rise in oil prices is somewhat moderated by two major factors. First, there is an increase in oil supply from countries outside the OPEC consortium. This additional supply acts as a counterbalance to the price increases.
Second, there are persistent concerns about the economic outlook in China, a major global consumer of oil. Recent economic data from China, including a contraction in factory activity for another month, points to weakened demand in the country. This softening demand in China is a key element in keeping oil prices from escalating further.
Analysts at ING, including Ewa Manthey, have provided insights into the current state of the oil market. They noted that the market experienced modest gains in early trading sessions, influenced in part by the renewed tensions in Gaza. These tensions have heightened the overall risk sentiment in the market.
The analysts also pointed out that the time spreads for both Brent and West Texas Intermediate crude remain tight. This tightness is a clear indicator of the ongoing squeeze in the physical oil market, reflecting limited availability relative to demand.
There is a general expectation that OPEC+ will extend its current production cuts into the next quarter. This strategy is aimed at averting a potential global surplus of oil, which could depress prices.
A recent survey conducted by Bloomberg supports this expectation, suggesting that the group is likely to continue with its strategy of cutting around 2 million barrels per day. This decision by OPEC+ is critical in shaping the global oil market dynamics, influencing both supply levels and price trends.
01.03.2024
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