Oil settles at five-month high, gains capped by jump in US stocks
A view of the newly commissioned Dangote oil refinery is pictured in Ibeju-Lekki, Lagos, Nigeria, May 22, 2023. REUTERS/Temilade Adelaja/File photo
NEW YORK — Oil prices settled at their highest levels since October on Wednesday on investor concerns about supply disruptions due to conflict in the Middle East, although a jump in U.S. crude oil inventories capped the gains.
Brent futures rose 43 cents, or 0.5 percent, to settle at $89.35 a barrel, and U.S. West Texas Intermediate futures gained 28 cents, or 0.3 percent, to $85.43 a barrel.
Both contracts were up more than a dollar earlier in the session due to growing concerns about the potential for a supply deficit during the peak summer driving season.
A meeting of top ministers from the Organization of Petroleum Exporting Countries and its allies including Russia, kept oil supply policy unchanged on Wednesday and pressed some countries to boost compliance with output cuts.
The group said some members would compensate for oversupplies in the first quarter. It also said Russia would switch to output rather than export curbs.
READ: OPEC+ unlikely to change output policy at April 3 meeting
“If those compensation cuts get implemented, and Russia switches their export cuts to crude cuts, OPEC+ production should trend lower in the second quarter – a period when demand seasonally picks up,” UBS analyst Giovanni Staunovo said.
Fed’s rate-cut strategy
Also on Wednesday, Federal Reserve Chair Jerome Powell was cautious about future interest rate cuts due to recent data showing higher-than-expected job growth and inflation.
The comments were positive for oil because they indicated solid U.S. economic growth, said Rob Haworth, senior investment strategist for U.S. Bank’s asset management group.
READ: Powell sticks with Fed’s cautious rate-cut strategy
In the Middle East, Iran has vowed revenge against Israel for an attack on Monday that killed high-ranking Iranian military personnel. Iran is the third-largest producer in OPEC.
Brent and WTI futures have hit five-month intraday highs for three consecutive sessions, also lifted as Ukraine’s attacks on Russian refineries cut fuel supply there.
Oil market participants are figuring out how to price in these developments and for how long, said Angie Gildea, the U.S. national sector lead for energy, natural resources and chemicals at KPMG.
Bank of America Global Research raised its 2024 Brent and WTI forecasts to $86 and $81 a barrel, respectively, it said in a note.
Oil’s gains were capped after the U.S. Energy Information Administration reported U.S. crude stocks increased by 3.2 million barrels in the week to March 29. Analysts polled by Reuters had expected a decrease of more than 1.5 million barrels, in line with data reported by the American Petroleum Institute on Tuesday.
“The EIA report went in the other direction on crude oil from what the API reported yesterday, so that has helped pause the rally a little bit,” said Bob Yawger, director of energy futures at Mizuho.
