Macquarie: "It will be difficult to keep crude oil prices above $90 a barrel"

Crude oil futures fell in foreign markets yesterday as lingering US inflation dampened interest rate cut optimism. However, stock market quotes are holding close to six-month highs as investors consider a potential attack on Israel by Iran, according to Reuters.

The price of US West Texas Intermediate (WTI) oil for May delivery was $85.85 a barrel at 07:14 local time, down 0.4% from the previous day. European Brent oil for delivery in June was quoted at $90.15 a barrel, also down 0.4%.

"We think it will be difficult to keep Brent crude above $90 a barrel in the second half of this year without a real supply disruption associated with geopolitical events," said Vikas Dwivedi, energy strategist at Macquarie. He adds: "As a result, we expect oil prices to decline as we move into this year due to increased non-OPEC supply, a significant amount of OPEC+ spare capacity coming back into the market and the potential for inflation to reduce the demand".

Minutes of the US central bank's (Fed)'s latest monetary policy meeting show that Fed officials are concerned that inflation will persist and that tight monetary policy will be needed for a longer period to keep prices under control in the most world economy.

Investors who expected a Fed rate cut in June now see September as a more likely time for the start of the US monetary policy easing cycle.

High interest rates applied for a longer period of time could affect economic growth, respectively the demand for oil.

Last month, the International Energy Agency predicted that the world oil market would face a supply deficit in 2024, not a surplus as previously estimated, as the OPEC+ group (the Organization of the Petroleum Exporting Countries and its allies) tries to production cuts continue in the second part of the year.

"The change in policy shows that we will rather end up with a supply deficit, instead of a surplus, as we estimated in February," the AIE report states. The agency forecast at the time that oil demand would increase by 1.3 million barrels per day (bpd) worldwide this year, amid an encouraging economic outlook in the US and increased fuel consumption for ships. This year, global oil demand will average 103.2 million bpd, according to the IEA.

It remains to be seen whether the IEA's forecast will come true, especially as recently released US inflation data beat expectations in March. According to the US Department of Labor, the consumer price index continued to rise in March, up to 3.5% at an annual rate, from 3.2% in February. Analysts were counting on a 3.4% increase.

On a month-to-month basis, US consumer prices advanced 0.4% in March, the same as in February, but analysts had expected a 0.3% increase.

• OPEC+ maintains its policy

The OPEC+ alliance decided, last week, to maintain unchanged its policy of reducing oil production, in an attempt to preserve global stability in crude oil supply. OPEC said it was ending its policy in force from November 2022, in addition to voluntary cuts by some countries that began in July 2023.

The ministerial committee of OPEC+ stated that it analyzed the data on crude oil production from January and February 2024, and noted that OPEC and non-OPEC countries complied with the established production. The mandatory cut in crude oil production for members is about 3.66 million barrels per day, valid until the end of this year, while the voluntary cuts amount to 2.2 million barrels per day, in effect until June this year future.

OPEC countries that had excess production in January, February and March 2024 will present their detailed compensation plans by April 30. The next meeting of the alliance committee is scheduled for June 1.