The world’s two largest oil consumers, China, and the United States, showed signs of improving demand on Tuesday, while growing worries about escalating hostilities in the Middle East that could impact supply from the region supported the increase in oil prices.
By 0440 GMT, June delivery Brent futures were up 41 cents to $87.83 per barrel. West Texas Intermediate (WTI) crude futures for the United States increased 41 cents to $84.12 a barrel in the previous session, after closing at the highest level since October 27.
“The bullish catalysts for oil prices continue to pile up, with stronger-than-expected economic conditions in China and the U.S. offering a more optimistic demand outlook, while geopolitical tensions in the Middle East continue to heat up with the involvement of Iran,” Yeap Jun Rong, a market strategist at IG, email message.
For the first time in six months, manufacturing activity increased in China in March, and for the first time in one and a half years, it did the same in the United States, which should lead to higher oil consumption this year. The United States is the greatest consumer of crude oil worldwide, while China is the largest importer and second-largest user.
An Israeli raid on Iran’s embassy in Syria resulted in the deaths of seven military advisors, including three senior commanders, and escalated the conflict between Israel and Iran-backed Hamas in Gaza. Concerns regarding the effects on the oil supply have arisen as a result of the almost half-year-long conflict expanding to encompass Israel’s direct confrontation with Iran.
Since the battle hasn’t spread, the market hasn’t been concerned about supply interruptions. Its oil supply may be threatened by Iran’s involvement, according to ANZ analysts in a note.
On Wednesday, the Joint Ministerial Monitoring Committee of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, or OPEC+, will convene virtually to discuss the state of the market and the members’ implementation of output cutbacks. Upholding their current supply policy, which calls for voluntary output reductions of 2.2 million barrels per day through the end of the second quarter, is expected of members.
The fact that OPEC’s output decreased by 50,000 barrels per day last month suggests the voluntary restrictions are having some impact.
More restraint in OPEC+ countries’ production cuts is being felt locally, and “the market is also factoring in larger production cuts from Russia in the next 3 months (in place of some export cuts earlier),” according to an email from Suvro Sarkar, the lead of DBS Bank’s energy sector team.
“Combined with persistent geopolitical risk events including the recent attack on the Iranian embassy in Syria, this could take oil prices towards US$90/bbl in the near term,” he stated.
