Oil prices experienced a modest rise on Friday, signaling a slightly positive end to the week as markets awaited a decision from OPEC+ on supply agreements for the second quarter. The decision is influenced by differing demand indicators from key consumers such as the U.S. and China.
Brent futures for May gained 27 cents, or 0.33%, reaching $82.18 per barrel by 0403 GMT, while U.S. West Texas Intermediate (WTI) for April increased by 20 cents, or 0.26%, reaching $78.46.
WTI is on track for a weekly increase of at least 2.5%, while Brent is holding close to last week’s settlement price. Brent has maintained a comfortable position above the $80 mark for the past three weeks.
Analysts from BMI noted, “Brent crude prices continued to trade sideways this week… Brent at USD83/bbl has shown recent strength although fundamentals remain tilted to oversupply.” They added that expectations of OPEC+ production cuts continuing into Q2 2024 were weighing on sentiment due to anticipated soft demand. However, the analysts pointed out that timespreads for Brent futures contracts have widened, supporting a more bullish stance as markets factor in tightening in the months ahead.
A Reuters survey revealed that OPEC pumped 26.42 million barrels per day (bpd) this month, representing a 90,000 bpd increase from January. Libyan output also rose by 150,000 bpd month-on-month.
A decision on extending the production cuts is expected in the first week of March, with individual countries announcing their decisions.
The possibility of OPEC+ continuing the supply cuts beyond the first quarter, potentially until the end of 2024, could push oil prices above $80/bbl, according to DBS Bank’s Suvro Sarkar.
Supporting prices, the U.S. personal consumption expenditures (PCE) index, the Federal Reserve’s preferred inflation gauge, showed January inflation in line with economists’ expectations. This keeps the option of a June interest rate cut on the table, potentially lowering consumer costs and stimulating fuel buying activity.
However, a mixed set of February purchasing managers’ index (PMI) data from China, the world’s top oil consumer, limited price gains. China’s manufacturing activity contracted for the fifth consecutive month, according to an official factory survey, prompting expectations for further stimulus measures.
On the demand side, DBS Bank’s Sarkar acknowledged potential hiccups in the second quarter but projected a rebound in the second half of 2024, driven by the potential rate cut scenario, which could boost fund flows towards riskier assets.