Oil futures headed higher Monday, looking to recoup some of last week’s losses as traders continued to weigh the prospects for crude supply and demand.
Concerns about the economy and oil demand contributed to last week’s losses for oil.
Price moves
-
West Texas Intermediate crude
CL00,
+0.75%
for April delivery
CL.1,
+0.75%CLJ24,
+0.75%
rose 46 cents, or 0.6%, to $76.95 a barrel on the New York Mercantile Exchange following a weekly loss of 2.5%. -
April Brent crude
BRNJ24,
+0.54%,
the global benchmark, was up 12 cents, or 0.2%, at $81.74 a barrel on ICE Futures Europe. May Brent
BRN00,
+0.67%BRNK24,
+0.67%,
which is more actively traded, added 24 cents, or 0.3%, to $81.04 a barrel. -
March gasoline
RBH24,
+1.71%
tacked on 1.5% to $2.3111 a gallon, while March heating oil
HOH24,
+1.63%
climbed 2% to $2.7445 a gallon. -
Natural gas for March delivery
NGH24,
+5.80%
traded at $1.708 per million British thermal units, up 6.6%. The March contract expires at the end of Tuesday’s trading session.
Market drivers
“The global oil market is experiencing higher uncertainty regarding the balance between supply and demand,” said Stephen Innes, managing partner at SPI Asset Management. “This uncertainty has contributed to global benchmark trading within a relatively tight range.”
Global oil demand growth is expected to be lackluster this year, partly due to “sluggish economic conditions and increasing electric vehicle sales in China, he said in emailed commentary. Global oil supply, meanwhile, is ”poised to decelerate this year,” with the International Energy Agency forecasting a more modest supply growth this year than last year.
Given all of that, the oil market appears “poised to maintain relative equilibrium throughout the year,” said Innes.
However, SPI Asset Management sees oil prices leaning more toward the downside. Global growth, and consequently global oil demand, is more likely to “underperform expectations due to the challenges currently confronting the Chinese economy and the need for the Fed to persist in mitigating inflationary pressures,” he said.
There’s also a “heightened possibility” that global oil supply may exceed projections if U.S. shale producers continue to enhance drilling efficiency, said Innes. Also, tensions among OPEC+ members could resurface, “potentially leading to increased supply despite Riyadh’s efforts to bolster prices.”
Last week, crude prices fell, with WTI ending Friday at its lowest since Feb. 8 and Brent posting its lowest settlement since Feb. 14, based on front-month contracts.
“With inflation stubbornly hovering well above the Fed’s 2% target and the U.S. economy showing a resilience few had predicted, the markets moved to price in a scenario where interest rates remain high for longer,” Ricardo Evangelista, senior analyst at ActivTrades, said in emailed comments.
“Against this background, economic activity is expected to be impacted, leading to lower forecasts for future oil demand,” he said.
The Federal Reserve’s favored inflation gauge, the core personal-consumption-expenditures index, is due Thursday.
Investors came into 2024 pricing in six to seven quarter percentage point rate cuts over the course of the year, beginning in March. As the data came in and the Fed pushed back on those expectations, markets now see a somewhat better-than-50% chance cuts will begin in June and that the Fed will deliver only three or four by year-end, according to the CME FedWatch tool.
The U.S. and U.K. conducted more strikes against Houthi targets inside Yemen on Saturday, the Wall Street Journal reported, extending a fight against the Iran-backed group that has targeted shipping in the Red Sea with drone and missile attacks.
While concerns remain over the potential for an escalation of the Israel-Hamas war, so far crude supplies have been largely unaffected.
Also see: Trump might deliver lower oil prices but ‘mixed’ performances for oil and gas stocks
