Oil prices climb as markets await OPEC+ decision amidst mixed demand drivers

Oil prices edged higher on Friday and were on track to close the week with slight gains as markets anticipated an OPEC+ decision on supply agreements for the second quarter. Mixed demand indicators from major consumers like the U.S. and China added to the uncertainty.

Brent futures for May rose by 31 cents, or 0.38%, reaching $82.22 a barrel by 0645 GMT, while U.S. West Texas Intermediate (WTI) for April increased by 24 cents, or 0.31%, reaching $78.50.

WTI is poised for a minimum 2.5% increase this week, while Brent is maintaining proximity to last week’s settlement price. Brent has consistently remained above the $80 mark for the past three weeks.

“Brent crude prices continued to trade sideways this week… Brent at USD83/bbl has shown recent strength although fundamentals remain tilted to oversupply,” noted BMI analysts in a client note.

“Expectations of a continuation of OPEC+ production cuts into Q224 is also weighing on sentiment as soft demand is expected to persist…However, timespreads for Brent futures contracts have widened. The move to stronger backwardation (market structure) will be supportive of a more bullish stance for prices as markets are pricing in tightening in the months ahead,” added the analysts.

According to a Reuters survey, OPEC produced 26.42 million barrels per day (bpd) this month, up by 90,000 bpd from January. Libyan output also increased by 150,000 bpd compared to the previous month.

Sources have indicated that a decision on extending the cuts is anticipated in the first week of March, with individual countries expected to announce their decisions.

The likelihood of Saudi-led OPEC+ extending supply cuts beyond the first quarter, possibly until the end of 2024, is increasing. This trend is expected to sustain oil prices above US$80 per barrel, as mentioned by DBS Bank energy sector team lead Suvro Sarkar.

Strong expectations exist that Saudi Arabia will maintain term prices of crude sold to Asian customers at similar levels in April compared to March. This expectation is further bolstering the market sentiment.

The U.S. personal consumption expenditures (PCE) index, the Federal Reserve’s preferred inflation gauge, indicated January inflation in line with economists‘ expectations, reinforcing market speculations for a June interest rate cut. This potential rate adjustment could reduce consumer costs, thereby stimulating fuel buying activity and supporting prices.

Price gains were limited by a varied set of February purchasing managers‘ index (PMI) data from China, the world’s largest oil consumer.

In February, China’s manufacturing activity contracted for the fifth consecutive month, as per an official factory survey released on Friday. This highlights the pressure on Beijing policymakers to introduce additional stimulus measures, given the difficulties faced by factory owners in securing orders.

Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 80.38% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.