Brent oil: Oil prices have climbed 20% since the start of the year

(BFM Bourse) – The two main oil contracts have been rising sharply since the start of 2024, which can be explained by several factors, notably production reductions and the geopolitical situation.

After a disappointing 2023, oil prices seem set to take their revenge this year.

The two main oil contracts have progressed significantly since January 1st. June North Sea Brent contract advances 19%

at 91.72 dollars per barrel while that of May on WTI listed in New York advanced 22.2% to 87.19 dollars per barrel.

Brent also rose above $90 per barrel last week, a level that the London contract, and the main international reference, had not seen since October 2023, i.e. six months.

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Tensions on supply

Several factors explain the recent rise in black gold prices. “First of all, the global economic outlook is more optimistic, which has boosted expectations for oil demand,” summarizes Stephen Innes, of Spi asset management, in a note published on Saturday.

The International Energy Agency (IEA) revised its demand growth projection for 2024 upwards in mid-March, expecting an increase of 1.3 million barrels per day, or 110,000 barrels more than in its previous projections. As a reminder, oil demand represents a little over 100 million barrels per day.

This revision is explained by a better-than-expected American economic outlook but also by the disruptions occurring in the Red Sea, notes UBS. Due to attacks on ships in this region, several oil tankers have bypassed the Red Sea, which has increased fuel consumption for shipping.

Obviously, the action of the members of OPEC+, a cartel which includes the Organization of the Petroleum Exporting Countries and their allies such as Russia, also plays a role on the supply side. In early March, its members decided to extend their production cuts of 2.2 million barrels per day until the end of June, with 1 million barrels per day coming from Saudi Arabia.

Furthermore, Bloomberg reports that Mexico has reduced its crude exports, which represented 600,000 barrels per day last year, including 420,000 to the United States.

Geopolitics weighs

Geopolitical tensions also supported oil prices. Particularly in the Middle East, where these tensions raise fears of supply risks. A recent attack on an Iranian consulate in Syria was attributed to Israel by Tehran, which promised to retaliate. This raised fears of a risk of escalation in the region.

On Friday, the price of black gold increased significantly, supported by fears that the conflict between Israel and Hamas would spread to neighboring countries, including Iran.

“If Iran attacks Israel, it is certain that oil will experience a sudden rise,” judges Han Tan, analyst at Exity quoted by AFP.

“However, Ukrainian drone attacks on Russian refineries, which have exacerbated geopolitical tensions and raised fears of further supply disruptions, constitute a determining factor in recent price developments,” underlines Stephen Innes.

After this great journey, will black gold continue to progress? Opinions seem a little divided.

Bank of America expects the current context to lead to a tighter supply-side driving season. As a reminder, this season corresponds to a period when Americans drive more (and therefore consume more fuel) with the start of public holidays and vacations, i.e. between the end of May and the beginning of September.

The American establishment also expects an oil deficit in the second quarter and third quarter which would amount to around 450,000 barrels per day.

Is Brent at 100 dollars credible?

As a result, the American bank raised its average price forecast for the two oil contracts. But it remains at levels which do not really provide solid potential. Bank of America expects Brent to trade at an average of $86 per barrel in 2024, rising to $81 for WTI. However, she warns that price peaks could be seen around $95 this summer.

“While crude oil prices remain uncertain, we believe WTI will find a happy medium around $80 per barrel. I think the outlook is relatively balanced on both upside and downside risks at this point, particularly considering that current oil price levels likely align with Saudi Arabia’s preferences,” said Stephen Innes of Spi Asset Management.

For the latter, geopolitical tensions constitute the main factor of potential increase while on the downside we must monitor the production of shale oil in the United States which has gained in efficiency.

“It’s a market that rests on solid fundamental foundations, there’s no doubt about it,” judges Bob McNally, founder of the Rapidan Energy Group consulting group and former White House advisor, quoted by Bloomberg. “I think $100 oil is completely realistic – you just have to assess the real geopolitical risk a little more,” he added.

Quoted by the Wall Street Journal at the end of March, the JPMorgan bank estimated that the barrel of Brent could reach 100 dollars by September due to production cuts by Russia. But as the bank itself pointed out, the United States can very well release strategic oil stocks to mitigate the impact…