Crude prices inched up approximately 1% on Monday, with U.S. futures closing at a five-month peak, driven by expectations of robust economic growth in the U.S. and China, coupled with tightening supplies resulting from OPEC+ output cuts and attacks on Russian refineries.
Brent futures for June delivery settled at $87.42 a barrel on Monday, marking June’s debut as the front month.
This represented a rise of around 42 cents, or 0.5%, from the settlement price for the June contract on April 28, with April 29 being the Good Friday holiday. Notably, the May Brent contract settled at a five-month high of $87.48 a barrel on April 28.
The U.S. diesel crack spread, an indicator of refining profit margins, narrowed to its lowest level since May 2023 for the second consecutive day.
In the U.S., manufacturing experienced growth in March for the first time in 1 1/2 years. However, factory employment remained subdued amidst significant layoff activity, coupled with rising input prices.
Analysts at ING noted that while the manufacturing data may reduce the likelihood of substantial Fed rate cuts, weak construction figures and forthcoming jobs data still warrant attention.
However, most analysts believe that the moderation in the PCE price index could keep a June Fed rate cut on the table, potentially boosting economic growth and oil demand.
In China, official factory surveys revealed that manufacturing activity expanded in March for the first time in six months, signaling positive momentum in the world’s largest crude importer.
Bob Yawger, director of energy futures at Mizuho, emphasized the potential impact of strong summer gasoline demand and a rebound in Chinese oil demand on pushing oil prices higher, possibly towards $100 a barrel.
Optimism in Japan’s services sector surged to a 33-year high in the first quarter, driven by robust tourism and increased profits resulting from price hikes.
In Europe, oil demand exceeded expectations, rising by 100,000 barrels per day (bpd) year-on-year in February, contrary to forecasts of a 200,000-bpd contraction in 2024, according to Goldman Sachs analysts.
On the supply side, Saudi Arabia may consider raising the official selling price (OSP) in May for flagship Arab Light crude amid strengthening Middle East benchmarks last month.
Russian Deputy Prime Minister Alexander Novak announced that Russian oil companies will focus on reducing output rather than exports in the second quarter to align with production cuts agreed upon by OPEC+ members.
Similarly, drone attacks from Ukraine have disrupted operations at several Russian refineries, resulting in a reduction in Russia’s fuel exports as nearly 1 million bpd of Russian crude processing capacity remains offline.
