Oil prices at four-month high as revised IEA outlook signals tighter market

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Oil prices rose on Thursday to settle at four-month highs as the International Energy Agency (IEA) predicted a tighter market in 2024 and raised its view on oil demand growth this year.

Global oil benchmarks rise

Brent crude oil futures for May climbed $1.39, or 1.7 per cent, to settle at $85.42 a barrel, the highest close since November 6.

US West Texas Intermediate (WTI) crude for April rose $1.54, or 1.9 per cent, to end at $81.26, also its highest since early November.

Both benchmarks had chalked up gains close to 3 per cent on Wednesday.

The IEA raised its view on 2024 oil demand growth for a fourth time since November as Houthi attacks disrupt Red Sea shipping but warned that “the global economic slowdown acts as an additional headwind to oil use”.

IAE forecast

The energy watchdog forecast demand will rise by 1.3 million barrels per day in 2024, up 110,000 bpd from last month, but still lower than growth of 2.3 million bpd last year.

The IEA also cut its 2024 supply forecast and now expects oil supply to rise by 800,000 bpd to 102.9 million bpd this year.

“Demand is staying high, while supplies are getting tighter, particularly on the fuel side. The refining margins are also very strong and a positive for crude demand,” said Dennis Kissler, senior vice president of trading at BOK Financial.

The 3-2-1 crack spread, a proxy for refining margins, rose to their highest since mid-September on Wednesday, incentivising more crude processing.

Russia’s energy ministry said Russia’s seaborne fuel exports fell 1.5 per cent from the previous month in February because of refinery downtime stemming from Ukrainian targeting its facilities.

The damage to refineries could cut Russian gasoline production by more than 10 per cent, said Kissler.

Meanwhile in the US, crude and gasoline inventories plunged last week, government data showed on Wednesday, with sharply higher pump prices expected in the coming weeks as major refinery outages have cut supplies ahead of the summer driving season.

US output

US producer prices rose 0.6 per cent in February, partly because gasoline prices increased by more than forecasts for a 0.3 per cent advance.

Traders now see a 63.5 per cent chance of the Federal Reserve cutting rates in June, according to the CME FedWatch tool, down from 67 per cent prior to the data. Lower interest rates cut consumer borrowing costs, which can boost economic growth and demand for oil.

Near-term growth in global oil and liquids production will be driven primarily by the US, Guyana, Canada and Brazil, offsetting voluntary production cuts by OPEC+, the US Energy Information Agency forecast on Thursday.

Read: OPEC, IEA oil demand forecasts since 2008: A comparison