Oil prices remained near a 4-½ month high in Asian trading on Tuesday, driven by softer exports from Iraq and Saudi Arabia, which reinforced expectations of tighter oil markets this year. However, sentiment remained cautious ahead of a Federal Reserve meeting.
In the Asian session, Brent oil futures expiring in May edged up 0.1% to $86.93 a barrel, while West Texas Intermediate crude futures stabilized at $82.19 a barrel. Both contracts had surged over 2% on Monday, nearing highs last observed in early November.
The recent surge in oil prices was fueled by various factors indicating a tightening outlook for oil markets. Increased refinery activity in the U.S., improved demand from China, and ongoing disruptions in the Middle East contributed to this sentiment. Iraq, the second-largest producer in the Organization of the Petroleum Exporting Countries (OPEC), announced plans to cut crude exports to offset higher production levels in 2024. Additionally, data from Saudi Arabia revealed a decline in crude exports for the second consecutive month in January, while Ukrainian attacks disrupted operations at a key fuel refinery in Russia.
These signs of tighter supply coincided with some positive economic indicators from major crude consumers, particularly China. The country witnessed stronger-than-expected growth in industrial production and fixed asset investment during the first two months of 2024, and travel demand recovered to pre-COVID levels during the Lunar New Year holiday. However, concerns lingered about whether China could sustain this momentum, especially as consumer spending remained weak and unemployment unexpectedly rose in the January-February period.
Market focus shifted to the conclusion of a two-day Federal Reserve meeting scheduled for Wednesday, where the central bank was expected to maintain interest rates at current levels. Investors were wary of any potentially hawkish signals from the Fed, given the resilience of the U.S. economy and persistent inflation pressures in recent months. While a strong U.S. economy is favorable for fuel demand, prolonged higher interest rates could dampen demand later in 2024.
Aside from the Fed meeting, attention this week also centered on a flurry of purchasing managers index (PMI) readings for March from the U.S. and other major economies, providing further insights into global economic conditions.