Global crude oil prices have notched a second consecutive weekly gain, reaching six-month highs, as the specter of direct conflict between Israel and Iran looms over the market, potentially tightening supplies. This sudden surge in oil prices has revived concerns about inflationary pressures and prompted fresh worries among global central bankers, policymakers, and investors.
Both the Brent and US West Texas Intermediate (WTI) crude oil benchmarks experienced an uptick of over $1 per barrel in the previous session, propelled by escalating geopolitical tensions. Brent crude settled at $91.17 a barrel, marking a 0.57% increase, while US WTI crude finished at $86.91 a barrel, up by 0.37%. These figures represent the highest levels for both benchmarks since October, according to Reuters.
On the domestic front, crude oil futures settled marginally higher at ₹7,286 per barrel on the multi-commodity exchange.
The surge in oil prices this week was fueled by a multitude of factors:
1. Geopolitical tensions: Iran’s vow of retaliation against Israel following an attack that claimed the lives of high-ranking Iranian military personnel has heightened concerns of direct conflict. Israel’s involvement in the attack on Iran’s embassy compound in Syria further exacerbates tensions, potentially setting the stage for further escalation.
2. Disruption in Russian capacity: Ongoing Ukrainian drone attacks on refineries in Russia have disrupted over 15% of Russian capacity, impacting global fuel output and contributing to supply risks.
3. OPEC+ policy: The Organization of the Petroleum Exporting Countries (OPEC) and its allies maintained their oil supply policy unchanged this week, while urging member countries to enhance compliance with output cuts. Analysts anticipate a tighter market and a drawdown in inventories during the second quarter of 2024.
4. Robust US job growth: March saw significant job growth in the US, signaling potential robust oil demand. However, this could potentially delay anticipated interest rate cuts by the US Federal Reserve later this year.
5. Global oil demand: Analysts at JPMorgan project global oil demand to grow by 1.4 million barrels per day in the first quarter of 2024, adding to supply risks amidst ongoing geopolitical conflicts in the Middle East.
6. Decrease in US rig count: US energy firms reduced the number of oil and natural gas rigs operating for the third consecutive week, signaling a potential slowdown in future output.
While crude oil prices are bolstered by escalating tensions between Israel and Iran, positive Chinese economic data and a decline in US gasoline stocks provide additional support. However, gains are tempered by a steady dollar index.
