Oil prices settled at their highest levels since October on Wednesday amid investor concerns about supply disruptions in the Middle East conflict. However, gains were tempered by a surge in U.S. crude oil inventories.
Brent futures increased by 43 cents, or 0.5%, closing at $89.35 a barrel, while U.S. West Texas Intermediate futures gained 28 cents, or 0.3%, ending at $85.43 a barrel.
Earlier in the session, both contracts had surged by over a dollar due to worries about a potential supply deficit during the peak summer driving season.
A meeting of top ministers from the Organization of Petroleum Exporting Countries (OPEC) and its allies, including Russia, resulted in unchanged oil supply policy on Wednesday. The group urged some countries to enhance compliance with output cuts, with plans for some members to compensate for oversupplies in the first quarter. Additionally, Russia announced it would shift from export curbs to output cuts.
“If those compensation cuts are implemented, and Russia switches export cuts to crude cuts, OPEC+ production should decline in the second quarter – a period of seasonal demand uptick,” noted UBS analyst Giovanni Staunovo.
Federal Reserve Chair Jerome Powell’s cautious stance on future interest rate cuts due to recent strong job growth and inflation data was viewed positively for oil prices, indicating solid U.S. economic growth, according to Rob Haworth, senior investment strategist for U.S. Bank’s asset management group.
In the Middle East, tensions escalated as Iran vowed retaliation against Israel for a Monday attack that resulted in the death of high-ranking Iranian military personnel. Iran, the third-largest OPEC producer, adds to market uncertainties.
Both Brent and WTI futures have reached five-month intraday highs for three consecutive sessions, partly due to Ukraine’s attacks on Russian refineries, disrupting fuel supply.
Market participants are assessing how to incorporate these developments into pricing and for how long, remarked Angie Gildea, the U.S. national sector lead for energy, natural resources, and chemicals at KPMG.
Bank of America Global Research increased its 2024 Brent and WTI forecasts to $86 and $81 a barrel, respectively, according to a note.
However, gains were limited after the U.S. Energy Information Administration reported a 3.2 million barrel increase in U.S. crude stocks for the week ending March 29, contrary to expectations of a decrease exceeding 1.5 million barrels, as anticipated in data released by the American Petroleum Institute on Tuesday.
