Oil at six-month highs; Brent crude at above $91/bbl on Mideast tensions

SINGAPORE (ICIS)–Oil prices were extending gains, with Brent crude hitting past the $91/barrel mark on Friday, fueled by escalating geopolitical tensions in the Middle East which could disrupt supply amid output cuts by OPEC and its allies (OPEC+).

Prices looked set for a second weekly gain, with both contracts closing overnight at their highest since October 2023 following news reports that Israeli embassies are under threat of Iranian counterattacks.

($/bbl)	Contract	Low	High	Open	Last (at 02:53 GMT)	Previous Settlement	Change
Brent	June	90.86	91.22	91.21	90.96	90.65	0.31
WTI	May	86.64	87.07	86.86	86.72	86.59	0.13

On 4 April, Brent futures for June rose above $91/bbl before settling at $90.65/bbl, up by 1.5% from the previous session.

Signs that production cuts by OPEC+ are tightening supplies amid robust global demand have been driving up crude prices in recent weeks, offsetting concerns that the US Federal Reserve will delay its interest rate cuts.

The Joint Ministerial Monitoring Committee (JMMC) of OPEC+ met on 1 April recommended no change to the group’s output policy, which will keep the market in supply deficit through the second quarter.

The meeting appears to have focused on compliance with supply cuts, with members which have overproduced in the first quarter set to submit compensation plans on how to achieve production cut targets by the end of April. The next JMMC meeting will be held on 1 June.

Iran, OPEC’s third-largest producer, has pledged retaliation against Israel as high-ranking military officials were killed on 1 April in an air strike on Iran’s embassy compound in Syria. Israel has not taken responsibility for the strike.

The US has imposed new Iran-related counterterrorism sanctions against Oceanlink Maritime DMCC and its vessels, the Treasury Department said on 4 April.

The Oceanlink Maritime DMCC-managed vessel Hecate recently loaded Iranian commodities valued at over $100 million via a ship-to-ship transfer from another sanctioned tanker, the Dover, on behalf of Iran’s Sepehr Energy Jahan Nama Pars (Sepehr Energy), it said.

Sepehr Energy was sanctioned by the US Department of the Treasury’s Office of Foreign Assets Control in November 2023 for its role selling Iranian commodities, it said.

In a marked shift, the US issued on 4 April its most forceful public condemnation of Israel since the start of its war with Hamas, warning that US policy on Gaza will hinge on Israel’s actions to prioritize the safety of Palestinian civilians and aid workers.

Remarks from US Federal Reserve chair Jerome Powell on 3 April unsettled investors after signaling that the Fed has time to assess data and it needs clearer signs of lower inflation before cutting interest rates, adding that recent strong US economic figures did not materially change the overall picture.

A Fed rate cut is widely expected in June, but Powell indicated a necessity for further data before initiating any reductions.

“The prospect of rate cuts amid a mid-cycle slowdown has fuelled optimism about the global economy,” Australia-headquartered ANZ bank said in a note.

“More importantly, an improvement in economic data in China has boosted sentiment and lifted expectations around crude oil demand.”

Both China and the US posted manufacturing growth in March, marking the first time in six months for China and one-and-a-half years for the US.

This growth is expected to boost oil demand this year, especially since the US is the largest consumer of crude oil and China is the largest importer, researchers at Mint Finance said in a note for investment research and analysis firm Smartkarma.

“With prospects of global oil demand improving, concerns over oil supply have intensified due to escalating conflicts in key oil-producing regions. This escalation will further tighten oil supply-demand dynamic, pushing prices higher.”

Investors are now eyeing the deadline for US sanctions relief on OPEC member Venezuela which ends on 18 April for further direction.

If the US does not re-impose sanctions, Venezuela’s output could surpass the 1 million barrel/day threshold as early as December this year, rising to 1.12 million barrel/day by the end of 2025.

If sanctions are re-imposed, production is expected to remain flat at about 890,000 barrels per day.

“There are myriad arguments for and against reimposing sanctions, so the path that the US [takes] remains uncertain,” Rystad Energy’s senior vice president, Jorge Leon, said in a note.

The sanctions on Venezuela were initially removed in exchange for the promise of fair and free, internationally-monitored elections in 2024.

Focus article by Nurluqman Suratman

Thumbnail image: Rescuers work near the destroyed consulate building of the Iranian embassy in Damascus, Syria, on 1 April 2024. (Xinhua/Shutterstock)