Oil prices experienced an upward trend on Thursday, driven by expectations of tighter supplies, particularly due to reduced Russian production. This positive momentum positioned crude oil for a robust performance in the first quarter of 2024. However, crude prices faced two consecutive sessions of losses as unexpected increases in U.S. inventories and strong domestic oil production raised concerns about the future tightness of the market.
Read more: Oil prices slide for second consecutive day as U.S. stockpiles surge
U.S. dollar strength
The strength of the U.S. dollar also exerted pressure on oil prices, as traders favored the greenback in anticipation of further developments regarding U.S. inflation and potential interest rate cuts. Despite these factors, JPMorgan analysts expressed the belief that the easing of Russian crude production would provide support for oil prices and create an opportunity for Brent crude to reach $100 per barrel by September.
At 20:45 ET (00:45 GMT), Brent oil futures expiring in May rose by 0.3 percent to $86.34 per barrel, while West Texas Intermediate crude futures increased by 0.5 percent to $81.78 per barrel.
The outlook for the first quarter of 2024 indicated strong gains for both Brent and West Texas Intermediate prices, which had risen by 11 percent to 14 percent over the past three months. These price increases were primarily driven by expectations of tighter market conditions, as Russia, Saudi Arabia, and other OPEC members maintained ongoing production cuts. In March, Russia announced further cuts, and the country also experienced reduced fuel supplies due to attacks on its fuel refineries by Ukraine.
Geopolitical tensions, such as the Israel-Hamas conflict and supply disruptions resulting from attacks on ships in the Red Sea, further supported oil prices. These factors contributed to the overall positive sentiment in the market.
Russia’s deeper production cuts: A key influence
JPMorgan analysts highlighted Russia’s commitment to deeper production cuts as a key factor influencing the crude oil market in the coming months. They anticipated that this commitment, combined with other supportive factors, could drive Brent oil prices to reach $90 in April, rise to the mid-$90 range by May, and potentially approach $100 by September. However, the analysts also identified the United States as a potential obstacle to rising prices, particularly due to concerns over high gasoline prices leading up to the 2024 Presidential elections.
Recent weeks saw an increase in U.S. fuel demand with the arrival of the spring season, and refinery activity intensified, leading to a reduction in inventories. Nevertheless, oil production in the U.S. remained at record levels exceeding 13 million barrels per day. JPMorgan analysts cautioned that the U.S. government might resort to tapping into its Strategic Petroleum Reserve, as it did in 2022 when oil prices spiked due to the Russia-Ukraine conflict.
The analysts further noted that high oil prices could adversely impact demand, especially considering the already weakened global economic conditions. This highlights the potential challenges that the oil market may face in the near future.
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