Oil futures: Brent surges through $90/b on heightened Middle East tensions
Quantum Commodity Intelligence – Crude oil futures surged to fresh five-month highs Thursday with a late rally lifting Brent above $90/b for the first time since October, as heightened geopolitical tensions underpinned prices.
Front-month Jun24 ICE Brent futures were trading at $90.68/b (1900 GMT), compared to Wednesday's settle of $89.35/b and having reached $91.30 at one stage.
At the same time, May24 NYMEX WTI was trading at $86.54/b versus the day's high of $87.22/b and Wednesday's settle of $85.43/b.
Prices had been moving sideways throughout the day but spiked late in the session amid growing concerns that Iran was planning a major drone strike again Israel in retaliation for the attack on Iran's consulate in Damascus earlier this week.
Escalating tensions came as the Central Intelligence Agency (CIA) earlier warned Israel that Iran could launch a major military operation within 48 hours. The warning came after Iranian leaders promised to hit back at Israel, with President Ebraham Raisi saying that the attack "will not remain without answer."
"A combination of tightening supply/demand fundamentals and heightened geopolitical tensions continued to underpin sentiment," said Carsten Fritsch of Commerzbank, commenting earlier in the session.
"The current geopolitical developments in the Middle East and the conflict in Ukraine are having a particularly strong impact on supply concerns in the oil market, supporting prices."
Commerzbank also noted that Russia appears to be finding it increasingly difficult to find buyers for its crude due to the tightening of Western sanctions, while Moscow has also committed to a gradual reduction in oil production in the second quarter as part of the OPEC+ deal.
Hurricanes
Prices were given a further lift after the Colorado State University (CSU) predicted a highly active 2024 Atlantic hurricane season, fuelled by the impending La Niña weather system.
CSU is forecasting 23 named storms, including 11 which are expected to become hurricanes and five that could reach major hurricane status.
Meanwhile, Wednesday's OPEC+ JMMC meeting focused on compliance levels, with any talks on unwinding cuts left to for the full ministerial meeting scheduled for early June.
"The Committee welcomed the Republic of Iraq and the Republic of Kazakhstan pledge to achieve full conformity as well as compensate for overproduction," OPEC said in a statement, referencing two of the producers that have pumped above quota during the first quarter.
Inflation
Analysts said that OPEC will be mindful of the impact on global inflation from higher oil prices, but Dated Brent has already comfortably crossed the $90/b mark this week, which is the price refiners pay for physical barrels.
"Brent rallied to a 5-month high supported by bullish physical fundamentals. On the demand side, beats in US, China and manufacturing PMIs show early signs of the manufacturing cycle inflection, and our new European nowcast is solid," said Goldman Sachs in a client report.
"On the supply side, we continue to flag disappointing US pipeline-implied production and lower Russia liquids production as risks of more attacks on Russia oil infrastructure remain elevated," added the bank, referencing continued strikes against Russian refineries.
Crude oil and ultra-low sulfur diesel exports from Russia's Black Sea and Baltic ports are expected to drop sharply this month as producers adjust to refinery outages and OPEC+ output targets.
Crude oil loadings from the Black Sea port of Novorossiisk are expected to fall around 20% from March to 2.32 million mt in April, according to brokers Wednesday citing loading schedules.
Exports of ultra-low sulfur diesel (ULSD) loadings are also set to drop around 20% at Russia's primary products terminal in Primorsk to a six-month low of 1.4 million mt.
