Oil Prices Rise on Tightening Supply and Continued Attacks on Russian Infrastructure
Oil Prices Rise
Oil prices inched up in Asian trade on Monday, building on gains from the previous week of nearly 4% as concerns over supply constraints persisted amidst ongoing attacks on Russian energy facilities.
Supply Tightening Spurs Price Gains
Brent crude oil futures for May delivery climbed 47 cents to reach $85.81 a barrel, while the April contract for U.S. West Texas Intermediate (WTI) crude rose by 49 cents to $81.53. The more active May delivery contract for WTI traded 50 cents higher at $81.08 per barrel.
According to Vandana Hari, founder of Vanda Insights, recent strikes on Russian refineries have added $2-$3 per barrel of risk premium to crude prices. These attacks, occurring over the weekend, have sustained the upward pressure on oil prices.
Impact of Russian Refinery Attacks
One of the strikes led to a brief fire at the Slavyansk refinery in Kasnodar, which processes 8.5 million metric tons of crude oil annually. A Reuters analysis revealed that the attacks have disrupted around 7% of Russian refining capacity in the first quarter, affecting crude varieties exported to various markets, including China and India.
Geopolitical Tensions Heighten
In the Middle East, Israeli Prime Minister Benjamin Netanyahu's confirmation of plans to enter Gaza's Rafah enclave raised concerns about regional stability. German Chancellor Olaf Scholz expressed apprehensions, stating that such actions could impede efforts for regional peace.
Focus on Federal Reserve Meeting
Investors are closely monitoring the outcome of the U.S. Federal Reserve's two-day meeting scheduled to conclude on Wednesday. This meeting is expected to provide insights into the timing of potential interest rate adjustments, which could impact oil prices. Analysts anticipate that the Fed will likely maintain rates this month, with speculation rising about a rate cut in June.
Bullish Demand Outlook and U.S. Fuel Demand
Last week, both Brent and WTI futures recorded gains despite a minor decline on Friday. The International Energy Agency's optimistic demand report, attributing rising prices to reduced oil accessibility due to Houthi attacks in the Red Sea, bolstered market sentiment. Additionally, U.S. fuel demand contributed to the price surge as refineries completed various projects.
Oil prices continue to reflect geopolitical tensions and supply dynamics, with market participants closely monitoring developments in key oil-producing regions.
As the Federal Reserve's meeting looms, its decisions regarding interest rates could influence the trajectory of oil prices in the coming weeks.
