Oil rises, markets await OPEC+ decision despite mixed demand drivers

Oil rises, markets await OPEC+ decision despite mixed demand drivers

Oil prices rose on Friday and were expected to end the week slightly higher as markets anticipated an OPEC+ decision on supply agreements for the second quarter amidst divergent demand data from key customers the United States and China.

Brent futures for May jumped 27 cents, or 0.33%, to $82.18 per barrel at 0403 GMT, while U.S. West Texas Intermediate (WTI) for April advanced 20 cents, or 0.26%, to $78.46.

WTI is expected to rise by at least 2.5% this week, while Brent remains near last week’s closing price. Brent has remained comfortably over $80 for three weeks.

“Brent crude prices remained sideways this week. Brent at USD83/bbl has experienced recent gains, but fundamentals remain skewed toward oversupply,” wrote BMI analysts in a client note.

“The expectation that OPEC+ production cuts will continue into Q224 is also dragging on mood, as lackluster demand is projected to stay…However, time spreads for Brent futures contracts have widened. The shift to higher backwardation (market structure) would support a more positive perspective on prices, as markets anticipate tightening in the coming months,” the experts stated.

According to a Reuters poll, the Organization of Petroleum Exporting Countries produced 26.42 million barrels per day (bpd) last month, an increase of 90,000 bpd from January. Libyan output increased by 150,000 barrels per day from the previous month.

According to insiders, a vote to prolong the cutbacks is anticipated in the first week of March, with individual nations announcing their own decisions.

The possibility of Saudi-led OPEC+ sustaining production cuts beyond the first quarter, perhaps until the end of 2024, would likely push oil prices beyond US$80/bbl, according to Suvro Sarkar, DBS Bank’s energy sector team leader.

Supporting prices, the Federal Reserve’s favored inflation barometer, the U.S. personal consumption expenditures (PCE) index, showed January inflation in line with experts’ forecasts, keeping a June interest rate decrease in the cards. This, in turn, might reduce consumer costs and increase gasoline purchasing activity.

However, mixed February purchasing managers’ index (PMI) data from China, the world’s largest oil user, limited price advances.

China’s manufacturing activity fell for the fifth consecutive month in February, according to an official factory survey released on Friday, putting pressure on Beijing officials to implement further stimulus measures as factory owners struggle to find orders.

The official non-manufacturing purchasing managers’ index (PMI), which covers services and construction, increased to 51.4 from 50.7 in January, its highest level since September.

“Demand side we concur that 2Q will have hiccups and we are projecting Brent to average lower in 2Q24 compared to 1Q24, before rebounding in 2H24 on the back of the potential rate cut scenario, which should boost fund flows towards riskier assets,” Sarkar, of DBS Bank, said.