Oil Prices Inch Up as OPEC+ Decision Looms Amid Demand Uncertainty

Oil Prices Inch Up as OPEC+ Decision Looms Amid Demand Uncertainty

Oil prices experienced a slight uptick on Friday, poised to conclude the week with modest gains, amid anticipation surrounding OPEC+'s decision on supply agreements for the second quarter. Brent futures for May saw a 0.33% increase to reach $82.18 per barrel, while U.S. West Texas Intermediate (WTI) for April rose by 0.26% to $78.46. WTI is anticipated to mark a weekly increase of at least 2.5%, while Brent remains steady near last week's settlement. Despite hovering above $80 for three weeks, Brent crude prices have exhibited sideways trading, with analysts from BMI noting that despite recent strength, fundamentals still lean towards oversupply.

Expectations for OPEC+ to extend production cuts into the second quarter are impacting sentiment, with soft demand projected to persist. However, the widening timespreads for Brent futures contracts signal a move to stronger backwardation, which could support a more bullish stance on prices as markets anticipate tightening in the coming months. OPEC's output rose slightly in February, with Libyan production experiencing an uptick. A decision on extending production cuts is expected in early March, with indications suggesting the possibility of cuts continuing until the end of 2024.

Analysts at DBS Bank foresee the potential for oil prices to remain above $80 per barrel if Saudi-led OPEC+ extends supply cuts, supported by the Federal Reserve's consideration of a June interest rate cut, which could stimulate fuel buying activity by lowering consumer costs. However, mixed February purchasing managers' index (PMI) data from China, the largest oil consumer globally, tempered price gains. China's manufacturing activity contracted for the fifth consecutive month, prompting calls for further stimulus measures from policymakers. Nonetheless, the non-manufacturing PMI saw an increase, indicating growth in services and construction sectors.

DBS Bank's Sarkar projects some challenges in oil demand for the second quarter but anticipates a rebound in the latter half of 2024, especially if the potential rate cut materializes, leading to increased fund flows towards riskier assets.

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