Oil prices continued their upward trajectory in Asian trading on Monday, building upon gains observed last week, driven by the perception of tightening supply and exacerbated by renewed attacks on Russian energy infrastructure.
Brent crude oil futures for May delivery rose by 0.4%, or 32 cents, reaching $85.66 a barrel by 0416 GMT. Similarly, the April contract for U.S. West Texas Intermediate (WTI) crude increased by 0.5%, or 40 cents, to $81.44. The more active May delivery contract for WTI saw a 0.5% rise, trading at $80.95 per barrel, up by 37 cents.
Vandana Hari, founder of oil market analysis provider Vanda Insights, noted, “The strikes on Russian refineries added $2-$3 per barrel of risk premium to crude last week, which remains in place as we start this week with more attacks over the weekend.” However, Hari added that crude markets are awaiting fresh signals for the next significant move.
Over the weekend, one of the strikes caused a brief fire at the Slavyansk refinery in Kasnodar, which processes 8.5 million metric tons of crude oil annually, equivalent to 170,000 barrels per day. A Reuters analysis indicated that the attacks have shut down approximately 7% of Russian refining capacity in the first quarter, impacting refining complexes that process and export crude varieties to various markets, including China and India.
In the Middle East, Israeli Prime Minister Benjamin Netanyahu confirmed plans to proceed with the push into Gaza’s Rafah enclave, home to over 1 million displaced people, despite opposition from Israel’s allies. German Chancellor Olaf Scholz expressed concerns, stating that such actions would impede regional peace efforts.
Investors are closely monitoring the outcome of the U.S. Federal Reserve’s two-day meeting scheduled to conclude on Wednesday. According to Tony Sycamore, a market analyst with IG, the meeting will provide clarity on the timing of interest rate adjustments. Sycamore suggested that while the Fed is likely to maintain rates this month, the possibility of interest rate cuts at the June meeting is uncertain.
Lower interest rates could stimulate demand in the U.S., the world’s largest oil consumer, thus supporting oil prices. Despite a slight decline on Friday, both benchmark oil contracts registered gains last week. Oil prices had been rangebound for much of the past month until a bullish demand report from the International Energy Agency (IEA) on Thursday propelled prices to their highest level since November.
The IEA, representing industrialized countries, revised its demand outlook for the fourth time since November, citing Houthi attacks in the Red Sea that diverted crude and fuel carriers, thereby reducing oil accessibility. Additionally, for the first time, the IEA predicted a slight supply deficit for this year, departing from its previous surplus forecasts.
U.S. fuel demand also contributed to price support as refineries completed some projects. As of Friday’s close, Brent and WTI futures had risen by 11% and 13%, respectively, since the beginning of 2024.