Global oil markets experienced a rollercoaster ride this week, with prices briefly breaching the $85 per barrel mark for the first time since November 2023, before retreating on Friday's close. Despite the dip at the end of the week, both major benchmarks – Brent crude and West Texas Intermediate (WTI) – recorded robust weekly gains, reflecting the dynamic supply-demand dynamics shaping the energy landscape.
On Friday, Brent crude for May 2024 delivery slipped 0.09% to settle at $85.34 per barrel, while WTI for April 2024 delivery shed 22 cents, or 0.27%, to close at $81.04 per barrel. Despite this modest decline, Brent and WTI posted impressive weekly gains of 4% and 3.88%, respectively.
The rally in oil prices was fueled by growing optimism surrounding rising demand from U.S. refineries as they gear up for their production schedules. "Supplies are getting tighter" for motor fuels, said Phil Flynn, an analyst at Price Futures Group, adding, "Prices risk going higher."
However, concerns over the Federal Reserve's ability to cut interest rates due to persistent above-target inflation tempered the bullish sentiment. Lower interest rates are generally viewed as a catalyst for increased demand in the U.S., as they reduce borrowing costs for consumers and stimulate economic growth.
The International Energy Agency (IEA) raised its forecast for global oil demand in 2024 for the fourth time since November, citing disruptions caused by Houthi attacks on Red Sea shipments. The agency now projects a 1.3 million barrels per day increase in global oil demand this year, up 110,000 barrels per day from its previous estimate.
Furthermore, the IEA anticipates a slight supply deficit in 2024 if OPEC+ members maintain their production cuts, a reversal from its earlier projection of a surplus.
Adding to the bullish sentiment, U.S. energy firms this week increased the number of oil and natural gas rigs by the most in a week since September, with oil rigs rising to their highest level in six months, according to the closely watched report from energy services firm Baker Hughes.
The escalating tensions in Ukraine also contributed to the oil price rally, as a Ukrainian attack on a Russian refinery led to a fire at Rosneft's largest plant, marking one of the most significant attacks on Russia's energy sector in recent months.
While acknowledging the potential headwinds posed by a stronger U.S. dollar, which makes oil more expensive for holders of other currencies, market analysts remain optimistic about the overall trajectory of oil prices.
As the global economy navigates uncertain waters, the delicate balance between supply and demand dynamics, geopolitical tensions, and central bank policies will continue to shape the volatility in oil markets, keeping traders and investors on their toes in the weeks and months ahead.