Mar 19 2024: Oil prices experienced a decline on Tuesday, partly due to expectations of increased supply from Russia, slower-than-expected demand in sectors like jet fuel, and cautious trading ahead of the Federal Reserve’s decision on U.S. interest rates.
The Brent crude oil futures contract for May delivery dropped by 15 cents to $86.74 a barrel as of 0708 GMT, while U.S. West Texas Intermediate (WTI) prices fell by 13 cents to $82.03. The WTI April contract, expiring tomorrow, also decreased by 13 cents to $82.59.
Both benchmarks had reached four-month highs in the previous session, supported by reduced crude exports from Saudi Arabia and Iraq, along with indications of stronger demand and economic growth in China and the U.S.
Concerns about Russia’s supply grew due to increased exports following Ukrainian attacks on the country’s oil infrastructure, contributing to the downward pressure on prices.
JP Morgan analysts mentioned in a client note, “Attacks are expected to reduce Russian crude runs by up to 300 kbd (thousand barrels per day), in addition to scheduled maintenance closures… However, lower primary runs would lead to higher crude oil exports, enabling Russia to maintain output cuts while keeping exports steady.”
Russia plans to raise oil exports through its western ports in March by nearly 200,000 barrels per day (bpd) compared to the monthly plan of 2.15 million bpd.
Uncertainty surrounding U.S. interest rates ahead of the Federal Reserve meeting on March 20 at 1800 GMT added to market caution.
Suvro Sarkar, DBS Bank energy sector team lead, stated in an email, “The market may be in consolidation mode awaiting signals on rate cuts from this week’s FOMC meeting. Oil prices have already risen significantly in the past two weeks due to higher geopolitical risk premium after the attacks on Russian refineries … Profit-taking at these levels is possible as sustained price movements above US$85/bbl may not be sustainable in the near term for Brent.”
Analysts expressed slight caution about demand growth in the jet fuel sector before the summer travel season in the third quarter.
BMI analysts noted in a client note, “Global jet fuel prices are expected to be higher by 5.4% compared to our previous forecast, reaching USD111/bbl, as soft demand gives way to peak summer travel and stronger prices.”
“However, a global economic slowdown may reduce air travel consumption and limit jet fuel price upside,” they added.
Looking ahead, analysts maintained a bullish outlook on oil prices from a technical analysis perspective.
Kelvin Wong, senior market analyst at OANDA, remarked, “WTI crude price actions indicate a short-term uptrend phase, trading above its rising 20-day moving average in the past four sessions after a retest on the 20-day moving average on March 5. The next intermediate resistance is at US$84.90 per barrel.”
