Oil futures: Crude higher as Russia set to rein in Q2 crude output
Quantum Commodity Intelligence – Crude oil futures were climbing higher at the start of the week on reports that Russia was set to rein in Q2 production to meet its OPEC+ target by the end of the quarter.
Front-month May24 ICE Brent futures were trading at $86.87/b (1905 GMT), compared to Friday's settle of $85.43/b and having peaked at over $87/b early last week.
At the same time, May24 NYMEX WTI was trading at $82.12/b versus Friday's settle of $80.63/b.
Prices were already trending higher earlier in the session but rallied again on a Reuters report that Russia's government had ordered companies to reduce oil output in the second quarter to ensure they meet a production target of 9 million bpd by the end of June, compared to Q1 levels of around 9.4 million bpd.
"The oil market appears to have finally broken out of the fairly narrow range we have seen it trading in since the beginning of the year. Brent has spent much of the year trading within a $75-85/b range. However, recently the market managed to break above US$85/b," said ING in a client note.
"The rollover of voluntary supply cuts from OPEC+ into the second quarter of 2024, Ukrainian attacks on Russian refining capacity more recently, and lingering disruptions to oil flows through the Red Sea have provided a boost to the market," added ING.
Meanwhile, speculative net length in the global crude oil market hit its highest levels since October last year as geopolitical risk and OPEC+ supply cuts shifted market sentiment higher and left Brent trading at near five-month highs.
Drones
The March rally had in part been driven by repeated drone strikes on Russia's energy infrastructure aimed at its refining capacity. But European diesel cracks shed $3/b over the course of last week to leave cracks for ULSD at a fresh two-month low as sustained supply from east of Suez offset supply fears.
The Financial Times reported Friday that the US has urged Ukraine to rein in attacks on Russia's energy infrastructure, with Washington increasingly concerned over the impact on energy prices during an election year.
However, at least one more refinery was targeted over the weekend, named by Russian officials as the Kuibyshev plant in the south of the country.
Ukraine also hit two more large Russian large warships and destroyed its Black Sea Fleet communications centre.
Some analysts see markets as relatively sluggish heading into the final week of March, given the uncertain outlook for the global economy, particularly the US and the timeline for anticipated rate cuts.
The North Sea physical market was also under pressure, seen returning to an overhang situation in the wider Atlantic basin. Dated Brent differentials have slipped to a discount, with WTI Midland valued below the underlying swap on a FOB equivalent, while the CFD structure has slipped into contango.
