Oil prices proceeded to rise in trading sessions last week. On April 4, the price of North Sea Brent oil, for delivery in June 2024, soared to over 91 USD per barrel before reaching 90.65 USD per barrel at the end of the session.
Meanwhile, the price of light sweet crude oil (WTI) delivered in May 2024, increased by 1.16 USD, equivalent to 1.4% to 86.59 USD per barrel. Both of these oil contracts closed the April 4 session at their highest level since October 2023 and continued to go up after the session ended. Analysts say that increasing geopolitical tensions are becoming the main reason for oil price hikes.
Oil prices surged on April 4 after it was reported that Israeli embassies around the world had been placed on high alert due to the growing threat of Iran’s attack on Israeli diplomats.
Previously, every time Ukraine attacked Russian oil refineries to cut fuel supplies, oil prices also went up. “All of these geopolitical factors happened at once, driving bullish and sentiment and ultimately some profit taking,” said Frank Monkham, senior portfolio manager at Altimo LLC.
In addition, the policies of oil exporting countries in the direction of tightening the supply also cause oil prices to fluctuate in an upward direction.
The latest meeting on April 3 between top ministers of the Organisation of Petroleum Exporting Countries (OPEC) and its allies, also known as OPEC+, kept oil supply policies unchanged and pressured some countries to increase compliance with production cuts.
This group said some members will cut production to offset excess supply in the first quarter of 2024. OPEC+ also said Russia will move to tighten production instead of restricting exports.
In addition, last week, news that Mexico’s state energy company Pemex asked its trading unit to cancel exports of up to 436,000 barrels of crude oil per day in April also concerned the market about the possibility of oil supply shrinking.
Meanwhile, positive signals from the global economy are also an important factor contributing to boosting demand for oil and causing oil prices to increase.
In a research report published on April 3, Bank of America (BofA) estimated that improved economic growth expectations have pushed the global oil market into a shortage of about 450,000 barrels per day in the second and third quarters.
Recently, bright colours have appeared on the economic picture of the world’s leading countries, such as the US, India, China and others.
Notably, the world’s second economy, China, is showing signs of regaining growth momentum and overcoming the risk of deflation. China’s manufacturing purchasing managers index (PMI) in March 2024 exceeded expectations, showing the effectiveness of the Chinese Government’s economic stimulation policies.
Chief investment officer Brendan Ahern of the US-based asset management company Krane Funds Advisors LLC said that recently released data shows that the Chinese economy is experiencing springtime when green shoots appear.
Amid the above developments, BofA forecast that Brent and WTI oil prices will average 86 USD per barrel and 81 USD per barrel, respectively, this year, and both will peak at about 95 USD per barrel this summer, up about 10% from the current high levels.
Oil is always considered the lifeblood of the economy, and at the same time, it is also a barometer assessing the level of stability and growth of the global economy. Therefore, the increase in oil prices is a positive sign for the world economy.
However, if countries cannot prevent geopolitical tensions and cannot compromise or coordinate the supply of oil appropriately, oil prices will increase to 95 USD per barrel, as predicted this summer, which will be a factor hindering the recovery of the global economy. Rising oil prices also bring the “ghost of inflation” back to many economies.
