Oil prices experienced a modest uptick during early trading in Asian markets on Monday, extending gains from the previous week’s notable surge of nearly 4%. This rise was attributed to growing perceptions of tightening supply conditions in the oil market.
Brent crude oil futures for May delivery saw a marginal increase of 3 cents, reaching $85.37 a barrel, while the April contract for U.S. West Texas Intermediate (WTI) crude edged up by 10 cents to $81.14. Analysts from ANZ underscored the continued presence of elevated geopolitical risks, particularly pointing to a recent escalation in Ukrainian drone strikes targeting Russian oil refineries. One such strike at the Slavyansk refinery in Kasnodar caused a brief fire, impacting the processing capacity of around 8.5 million metric tons of crude oil annually, equivalent to 170,000 barrels per day. A Reuters analysis revealed that these attacks have resulted in the idling of approximately 7% of Russian refining capacity in the first quarter alone.
Meanwhile, tensions in the Middle East escalated further as Israeli Prime Minister Benjamin Netanyahu reaffirmed plans to advance into Gaza’s Rafah enclave, despite objections from Israel’s allies. This move sparked concerns about its potential impact on regional stability and peace efforts, with German Chancellor Olaf Scholz expressing apprehension about its ramifications.
In the financial sphere, investors eagerly await the outcome of the U.S. Federal Reserve’s forthcoming two-day meeting, scheduled to conclude on Wednesday. This event is anticipated to provide clarity regarding the Fed’s stance on interest rate adjustments, with market analyst Tony Sycamore highlighting the uncertainty surrounding potential rate cuts at the June meeting. While it is expected that the Fed will maintain current interest rates this month, the likelihood of future rate reductions remains uncertain, which could influence oil prices by affecting demand dynamics in the U.S.
Despite fluctuations, both Brent crude and WTI contracts closed the previous week with significant gains, driven in part by a positive demand outlook provided by the International Energy Agency (IEA). The IEA revised its projections upwards for the fourth time since November, citing increased fuel consumption due to Houthi attacks in the Red Sea. These attacks forced vessels to reroute, leading to higher-than-anticipated demand for oil. Additionally, the IEA forecasted a slight deficit in oil supply for the year, marking a shift from previous predictions of surplus.
