Oil prices surged in Asian trading on Thursday, propelled by expectations of tighter supplies, particularly with reduced Russian production, positioning crude for a robust performance in the first quarter of 2024.
Over the past two trading sessions, crude prices faced consecutive losses due to an unexpected uptick in U.S. inventories and robust oil production within the nation, sparking uncertainties regarding market tightness in the upcoming months.
The strength of the dollar also exerted pressure, as traders favored the greenback amidst anticipation of further indications regarding U.S. inflation and potential interest rate adjustments.
However, analysts at JPMorgan highlighted that indications of easing Russian crude production were likely to support oil prices, potentially paving the way for Brent to test the $100 per barrel milestone by September.
During the trading period, Brent oil futures expiring in May climbed by 0.3% to $86.34 a barrel, while West Texas Intermediate crude futures rose by 0.5% to $81.78 a barrel by 20:45 ET (00:45 GMT).
In a broader context, both Brent and WTI prices were poised for significant gains in the first quarter of 2024, with increases ranging between 11% and 14% over the past three months.
This bullish trend was primarily fueled by a tighter market outlook, as key oil-producing nations such as Russia, Saudi Arabia, and other OPEC members sustained ongoing production cuts. Russia’s commitment in March to further reduce production, coupled with diminished fuel supplies following attacks by Ukraine on Russian refineries, reinforced this outlook.
Geopolitical tensions, notably the Israel-Hamas conflict and supply disruptions from Houthi attacks in the Red Sea, also contributed to the upward momentum in oil prices.
JPMorgan analysts emphasized that Russia’s intensified production cuts could drive Brent prices to $90 in April, potentially reaching the mid-$90s by May and nearing $100 by September.
However, the analysts cautioned that the United States could pose a challenge to these price projections, particularly with high gasoline prices expected to become a contentious issue leading up to the 2024 Presidential elections.
Recent weeks witnessed a resurgence in U.S. fuel demand with the onset of the spring season, alongside heightened refinery activity resulting in inventory reductions. Nevertheless, U.S. oil production remained at record highs, surpassing 13 million barrels per day.
JPMorgan analysts warned that the U.S. might resort to tapping into its Strategic Petroleum Reserve to alleviate oil prices. The Biden Administration had previously drawn down the reserve to near 40-year lows in 2022 to mitigate the impact of soaring oil prices triggered by the Russia-Ukraine conflict.
Elevated oil prices could potentially dampen demand, particularly amid weakening global economic conditions, further influencing market dynamics.