After a relative calm of six days, things have started to heat up again in and around the Red Sea – offering bullish momentum to international crude oil prices. Brent crude has now stretched the rally beyond $83/bbl – nearing a month high, as tensions in the Middle East refuse to fade. Russian supply disruptions are now touching a new high- with the Ukraine -Russia conflict adding new zones of war – further restricting Russian supply.
The US and European sanctions on flow of Russian crude have also been further tightened – as Asian buyers are now looking westwards to satiate the quench. All this while, the Opec Plus cartel has stood firm on its global growth and oil demand projections for 2024 and 2025. For the third month running, Opec in its monthly outlook report has maintained a strong economic growth projection of 2.7 percent in 2024, and 2.9 percent for 2025.
Monetary easing is also weighing in on oil markets – as the reversal may take a little longer than earlier anticipated. That said, easing in general inflation around the West is pretty much on the cards and that should spur demand, especially in the second half of the year. On-demand, not everybody shares Opec sentiments – as the US EIA, EIA and leading banks continue to project a much-altered picture in terms of both demand and supply projections.
The demand outlook from OPEC and the International Energy Administration (IEA) previously used to be well-aligned, especially on long term. That has now changed, with frequent divergence of views, and more pronounced since the Opec Plus alliance has doubled down on production cuts, now promised to last the entire 2024.
The IEA foresees subdued global economic growth, whereas Opec sees a 2.6 percent global growth in 2024 to lead to a 2.25 million bpd increase in oil demand. The IEA on the other hand sees oil demand rising by a more modest 1.3 million bpd – more in line with the EIA’s Short-Term Energy Outlook released a few weeks earlier.
While the US has continued to pump more and more oil, the Opec Plus efforts have successfully managed to keep the market around equilibrium. Opec leaders have more than once demonstrated the will to do whatever it takes to keep the market balanced – by voluntarily taking millions of barrels off the market. More of the same cannot be ruled out once the existing arrangement that is in place till March expires. There is an emerging consensus that Opec will at the least continue with supply cuts, and even opt for more aggressive cuts if the price is under $80/bbl on a 100-day moving average basis.
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