Oil prices edged higher on Thursday as a tighter outlook for crude markets amid Russia trimming output positioned crude for a solid first quarter this year.
May contract Brent crude oil futures rose 0.31% to $86.36 per barrel, while the US West Texas Intermediate (WTI) crude futures expiring in the same month increased 0.48% to $81.74 per barrel.
Traders have seen oil prices decline for two consecutive sessions following a surprise surge in US inventories and robust production in the country, which has raised uncertainty about the extent of markets’ tightening in the coming months.
A resilient US dollar has also kept prices in check, as sentiment over the greenback stayed strong ahead of further signals on inflation and interest rate cuts.
Solid Q1 Expected, Russia to Back Prices but US Might Impede
The global and US oil benchmarks are seen on track to post robust increases in the first quarter of 2024 and have gained between 11% and 14% in the last three months.
Crude prices were primarily driven by the prospect of tighter supplies after the Organization of Petroleum Exporting Countries (OPEC), Russia, and Saudi Arabia agreed to extend output cuts.
Furthermore, Russia stated earlier this month that it would trim production and exports by another 471,000 barrels per day (bpd) in the second quarter. The world’s second-largest oil producer has also observed a drop in its fuel stocks in the aftermath of Ukraine’s assault on Russian refineries.
Analysts said Russia’s additional output reductions signaled a tighter scenario for crude markets in the near term and put Brent on course for the $100 per barrel mark later this year. They expect Russia’s move to lead the global benchmark to $90 in April, mid-$90 in May, and near $100 in September.
However, the US may hold prices back, according to the analysts, stating that climbing gasoline prices in the country could be an issue ahead of the 2024 Presidential Elections in November.
The country’s fuel demand has strengthened in recent weeks as the spring season prompted a switch to a more costly summer gasoline. More refinery activity has also driven inventories lower in recent weeks. Still, production stayed at record peaks above 13 million bpd.
Analysts cautioned that the US might rely once again on the Strategic Petroleum Reserve (SPR) to ease oil prices.
In 2022, US President Joe Biden’s administration brought the country’s emergency oil supplies down to its lowest level since August 1983 to offset the impact of elevated crude prices caused by the fighting of Russia and Ukraine.
Demand may also be dented by higher oil prices, with weaker economic conditions worldwide already indicating a weak view of demand.
