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Will Brent crude oil prices hold onto gains at $90/bbl?

by Esra Ersöz - eersoz@chemorbis.com
  • 19/04/2024 (11:21)
Following the questions of last month whether Brent was really poised for $90/bbl, or it was just flirting with it, this month has seen Brent oil prices constantly trading at and above this critical threshold. Although they have recently been corrected way down on prevailing demand concerns, estimations are still largely calling for the strength of oil prices at and above $90.

What has happened so far in April?

June Brent crude futures mostly traded in the range of $89-91/bbl between April 4 and 17, pointing to the highest levels since mid-October 2023. The weekly average prices stood at $90/bbl, according to ChemOrbis Price Wizard, in the first two weeks of April following 4 steady weeks of gains totaling $7/bbl in March. When compared to the beginning of the year, the cumulative gains reached $15/bbl.

Geopolitical conflicts and output cuts have taken the driver’s seat during this recent period. Tension between Israel and Iran escalated and deescalated on a daily basis, managing to keep prices at and above this threshold amid concerns about a potentially further tightening.

As OPEC+ already agreed to extend output cuts into Q2, the market widely expects them to be extended to the year-end.

crudeoil

Bearish bets are still there

However, there was a 3% slump on Wednesday to bring Brent futures back to $86-87/bbl as demand destruction came to the fore once again. As a part of the escalating and deescalating tensions, Brent futures initially rallied more than 4% earlier on Friday to breach the $90 threshold again upon the news that Israel launched a strike back on Iran; however, gains faded later in the day to bring prices back to $87/bbl at the time of press.

Strong US retail sales data, revealed earlier this week, contributed to the concerns about demand by increasing the likelihood that interest rates in the world’s biggest economy would remain higher for longer and reduce demand for oil.

The latest April report of the International Energy Agency (IEA), meanwhile, revised its demand growth forecast back down to 1.2 million barrels. The agency also revealed its 2025 demand forecast this month, suggesting that demand growth will lose momentum further to 1.1 million bpd as the rise in demand for electrical vehicles will curb demand for fossil fuels.

Rising commercial inventories and oil production also fueled the demand concerns. On Wednesday, US crude inventories rose by 2.7 million barrels to 460 million barrels last week, government data showed, far exceeding expectations. The US Energy Information Administration (EIA) also reported the highest oil output in 5 months this week.

Will Brent prices at and above $90 be sustainable?

Last month, the EIA raised its oil price forecast by $5/bbl. This was followed by another $1.5-2 bpd increase in this month’s report. The agency now expects Brent to hover around $89/bbl in Q2 and average around $90/bbl in H2.

Wall Street Banks also raised their forecast for this year. Morgan Stanley and Goldman Sachs lifted their 2024 price projections for Brent to $94/bbl and $87/bbl respectively. Citi Group also expects Brent to average $88/bbl in 2024. The bank also added that prices may touch $100/bbl if the war in the Middle East continues to escalate. Bank of America also lifted its 2024 price projections for Brent to $86/bbl while Vitol Group, the world’s biggest independent oil trader, expects oil prices to trade in a range of $80-100/bbl in 2024.
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