The recent rally in oil prices is pushing the benchmarks towards a quarter of gains thanks to the OPEC+ output cuts.
WTI, according to Bloomberg, has added 14% since the start of the year, topping $82 per barrel earlier this week. Brent crude has gone from around $78 per barrel at the start of the year to over $86 per barrel this week.
What's interesting in the latest movements in oil is that prices earlier today moved up despite the Energy Information Administration reporting an estimated build in crude oil stocks for the latest week, as well as another one in gasoline.
Normally, these builds would be taken as signals of weaker demand but it seems traders are not taking these signs literally this time and are buying more oil instead of selling.
The anticipation of rate cuts, especially in the United States, is also acting as support for prices as lower rates stimulate stronger demand for crude. The first rate cut by the Fed is expected in June although the Fed itself has not set any date for it.
JP Morgan analysts pointed to Russia's decision to impose additional curbs on production, suggesting this could lift prices further and soon.
"Russia's actions could push Brent oil price to $90 already in April, reach mid-$90 by May and close to $100 by September," they wrote in a note, as quoted by Investing.com.
The prediction probably assumes that the rest of OPEC+ will continue producing less oil, too, as signaled repeatedly by cartel officials. OPEC is meeting again next week and expectations are that it will leave its production policy unchanged.
On the demand side, meanwhile, the picture is one of strength. "Demand conditions remain firmer than expected in the US and China," Standard Chartered analyst Han Zhong Liang told Bloomberg. Especially in China, demand is looking "increasingly positive following recent data releases." The latest from the world's number-one oil importer is higher industrial profits suggesting economic growth is gathering momentum.
By Irina Slav for Oilprice.com
Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More
Comments
The OPEC+ cuts have hardly had any impact on prices. The reason is that only an estimated 600,000 barrels a day (b/d) cut of 2.2 million barrels a day (mbd) are estimated to have been implemented. This is because the Saudi cut of 1.0 mbd is a cut that never was since Saudi Arabia couldn't produce it anyway because of production difficulties. Therefore, the real cuts amount to 600,000 b/d which are too small to impact prices.
The strength of the fundamentals is manifest by prices ignoring the Energy Information Administration (EIA) reporting an build in crude oil stocks which always happens every time prices begin to rise. This is one of the tools the US uses to manipulate the market.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert