Crude Oil Futures Prices Rallied To Highest Levels Since October In March – OPEC
The Organisation of Petroleum Exporting Countries (OPEC) has said that crude oil futures prices rallied to their highest levels since October 2023 in March.
OPEC attributed this positive development to “bullish market sentiment” related to oil market fundamentals, adding that there are signs that there would be increase in demand in the third quarter of 2024 as data show tighter United States supply of oil.
The organisation stated this in its Monthly Oil Market Report for April made available to Majorwaves Energy Report.
“Crude oil futures prices rallied to their highest levels since October 2023, supported by bullish market sentiment regarding oil market fundamentals, at a time of elevated risk premiums. Several reports highlighted robust global oil market fundamentals, especially for 3Q24, which conveyed confidence among traders.
This positive outlook was further supported by expectations of increased demand, coupled with data indicating tighter US oil supply conditions, as reported by the EIA. Easing concerns about China’s economy after the release of encouraging economic data, including higher than expected factory output, as well as a 3 percent y-o-y increase in crude oil refinery throughput for January and February, underscored strong Chinese demand in China,” OPEC said.
Although the oil futures prices were under pressure in the first week of March, prices however rallied to their highest levels in the second half of the month, OPEC said, citing uncertainty around the Federal Reserve’s monetary policy decisions, geopolitical tensions and China’s economic prospects.
“Crude oil futures prices continued their upward trajectory in March, driven by increasingly positive sentiments regarding oil market fundamentals, amid an elevated risk premium. This prompted money managers to sharply increase their bullish positions, particularly in the third week of the month, which added to oil price momentum, alongside higher financial flows in both futures contracts for ICE Brent and NYMEX WTI.
“In the first week of March, oil futures prices were under pressure amid risk-averse market sentiment. This included mixed economic indicators and geopolitical worries, as well as uncertainty regarding the Federal Reserve’s monetary policy decisions.
Concerns about China’s economic prospects following the announcement of its growth targets for 2024, combined with varying US economic data ahead of the Federal Reserve Chair’s congressional testimony, contributed to the market volatility. Nonetheless, oil futures remained buoyed by robust supply and demand fundamentals, as evidenced by the futures forward curves of major crude benchmarks, and a drawdown in US oil product inventories, indicating healthy demand.
“During the second week of March, oil futures traded within a narrow range as market participants awaited key economic data releases and given caution amid geopolitical uncertainties. Concerns persisted about the strength of oil demand in China, with reports suggesting a softening of utilization rates and weakening margins among Chinese independent refiners. Furthermore, the release of US consumer price index data, indicating ongoing inflation, tempered oil price gains,” the organisation stated.
The global oil benchmark, Brent crude, front-month rose by $2.95 in March (3.6%) to average $84.67/b, while the West Texas Intermediate (WTI l) increased by $3.80 (5.0%), to average $80.41/b.
“Y-t-d, ICE Brent was 34¢, or 0.4 percent, lower at $81.76/b, while NYMEX WTI was higher by 92¢, or 1.2 percent, at $76.91/b, compared with the same period a year earlier. DME Oman crude oil futures prices rose m-o-m in March by $3.30, or 4.1 percent, to settle at $84.25/b. Y-t-d, DME Oman was higher by $1.06, or 1.3 percent, at $81.34/b.”
According to the report, the value of OPEC Reference Basket rose in March by $2.99 per barrel, representing 3.7 percent, to average $84.22/b. In the month under review, Nigeria’s Bonny Light and other crude grades – Djeno, Es Sider, Girassol, Rabi Light, Sahara Blend, and Zafiro – rose by $1.63 month-on-month (1.9%) on average to stand at $85.09/b.
The global oil cartel said the world’s oil demand growth forecast for 2024 remains unchanged from February’s assessment of 2.2 milion barrels per day.
World Bank projection
The World Bank in October 2023 said that under a “large disruption” scenario like that witnessed during the Arab oil embargo in 1973, the global oil supply would shrink by 6 million to 8 mb/d if the ongoing conflict in the Middle East between Israel and Palestine militia group, Hamas, escalates. It has been more than six months since the conflict started, and it appears it is not affecting oil supply as earlier envisaged.
Hamas early in October attacked Israel in a dramatic fashion, firing about 5,000 missiles into the country, which caused the death of hundreds of people. Israel retaliated, besieged Gaza and has continued offensive operations in the area against Hamas.
OPEC’s report said that liquids supply from countries not participating in the OPEC+ Declaration of Cooperation (DoC) is expected to grow by 1.2 mb/d in 2024, revised down from the previous month’s assessment by about 0.1 mb/d. The US, Canada, Brazil and Norway are expected to be the main drivers for liquids supply growth from non-DoC countries. “The non-DoC liquids supply growth in 2025 is expected at 1.1 mb/d, revised down by 0.1 mb/d from the previous month,” OPEC said.
The crude oil production of the 12 OPEC-member countries in March increased by 3 tb/d, m-o-m, averaging 26.60 mb/d, based on secondary sourced data.
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Under the World Bank’s “large disruption” scenario, the oil price is expected to average between $140 and $157 a barrel, representing a hike of 56 percent to 75 percent.
The Bank, in its baseline forecast, projected oil prices averaging $90 a barrel in the fourth quarter of 2023 before declining to an average of $81 a barrel in 2024 as global economic growth slows.
According to the Bank, in a “small disruption” scenario, the global oil supply would drop by 500,000 to 2 million bpd. Under this scenario, it says the oil price is expected to increase between 3 percent and 13 percent relative to the average for the fourth quarter of 2023. The price is expected to average between $93 and $102 a barrel.
In a “medium disruption” scenario, the Bank said the global oil supply would decrease by 3 million to 5 million bpd. This would increase oil price by 21 percent to 35 percent. Prices would average between $109 and $121 a barrel.
