Crude oil to trade with upside bias; Brent may hit $90-$95/bbl in near-term
Global crude oil prices rose sharply by 5.9 per cent over the past month crossing the $86 per barrel mark for the first time since November 2023 –responding to seasonal tightening in physical markets, supply cut extensions, and a pick-up in geopolitical tensions. According to a report by ICICI Bank Research, the upside bias is emerging from geopolitical conflicts and crude prices are likely to trade accordingly in the near-term.
‘’In the near-term, the prospect of continued geo-political tensions could result in a possible overshoot in prices. We see an upside possibility of $90/bbl to $95/bbl emerging in the near-term,” said ICICI Bank in its research report.
What’s driving crude oil prices?
Tighter Markets: Physical markets tightened following a seasonal pattern in February. However, the more significant driver for the uptick in prices was the decision by the Organisation of Petroleum Exporting Countries and its allies (OPEC+) to extend production cuts from March 2024 to June 2024.
OPEC+ Decision: The decision came with an implicit guidance that could get extended over the remainder of the year. The decision by the oil cartel implied that physical markets were expected to remain tight from constrained supply over the second quarter in 2024.
Ukraine drone attack: The rise in geopolitical tensions also contributed to driving the prices higher in the last few days, with Ukraine launching drone attacks on Russian oil refineries, many of them deep within Russia.
This resulted in three key oil refineries Lukoil Nizhny (0.3 mbpd), Rosneft Ryazan (0.3 mbpd) and Surgut Kirishi (0.4 mbpd) going partially offline. Ukraine officials have stated the intent is to damage a key industry that provides revenue for Russia’s war and to disrupt domestic fuel supplies.
Red Sea crisis: Houthi militants in Yemen continue to target shipping vessels in the Red Sea, despite airstrikes from the US that has resulted in an increase in concerns over more disruptions to supplies from the region. However, so far, the hit to actual supply from developments in the Middle-East has not taken place that is in turn limiting the degree of upside in Brent crude oil prices.
Also Read: India’s crude oil output rises 7.9% to 2.3 MMT in February, imports decline 6.6% YoY: PPAC
Global crude oil prices outlook:
Apart from the near-term price outlook, ICICI Bank has raised its range from $75 per barrel to $85 per barrel in second quarter (Q2 2024) to $80 per barrel to $90 per barrel to take in to account the geopolitical uncertainty premium that could persist.
‘’However, we assume that an easing in geo-political tensions pushes Brent crude prices lower to the $75 per barrel to $85 per barrel range in the H22024,” said economists at ICICI Bank. On balances, the higher profile for prices over Q2 2024 has resulted in an increase in the average Brent crude price forecasts from $80 per barrel to $83 per barrel.
‘’There remain upside risks to our projections given the prospect of lower supply levels than we assumed,” said the ICICI Bank economists. For 2025, a relatively balanced physical markets could result in an unchanged flat trading profile of $75 per barrel to $85 per barrel.
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Published: 26 Mar 2024, 09:45 PM IST
