Oil prices saw a slight uptick in Asian trading on Friday, buoyed by market optimism regarding potential interest rate cuts by the Federal Reserve in mid-2024 as inflation pressures ease. However, prices remained constrained within a narrow range as signals of increased supply, including record-high U.S. production and elevated output from the Organization of the Petroleum Exporting Countries (OPEC), dampened expectations of a tighter global oil market.
Brent oil futures for May delivery climbed 0.4% to reach $82.23 a barrel, while West Texas Intermediate crude futures rose 0.3% to $77.74 a barrel by 20:44 ET (01:44 GMT).
Despite weekly gains, prices have largely moved within a range of $75 to $85 a barrel in 2024, reflecting market stability after recovering from a sharp decline the previous week.
Challenges from Increased Supply
OPEC members produced 26.42 million barrels per day (bpd) in February, up by 90,000 bpd from the prior month, signaling ongoing efforts to bolster supply. Concurrently, U.S. oil inventories expanded for the fifth consecutive week, with production reaching record highs exceeding 13 million bpd towards February’s end. These developments suggest that oil markets may not be as constrained as previously anticipated.
However, reports indicate OPEC’s commitment to maintaining current supply cuts until year-end, underscoring ongoing efforts to manage market dynamics.
Geopolitical tensions in the Middle East, particularly the Israel-Hamas conflict, persist, contributing to market uncertainty despite calls for a ceasefire by U.S. President Joe Biden during Ramadan.
Uncertain Demand Outlook
While hopes for U.S. interest rate cuts bolster market sentiment, uncertainties linger regarding crude demand. Although the Federal Reserve’s preferred inflation gauge, the PCE price index, eased in January, remaining above the Fed’s annual target, concerns persist. Several central bank members caution against prematurely reducing rates, highlighting a nuanced approach.
Potential rate cuts may coincide with economic cooling in the U.S., signaling subdued crude demand. Despite optimism surrounding inflation trends, ongoing economic dynamics warrant cautious optimism within the oil market.