Macro

Crude Hits 5-Month Peak, $83.20/WTI & $87.50/Brent, Q2 Rise Seen

Oil prices hit 5-month peak in Q1 2024, driven by OPEC cuts and geopolitical tensions, with analysts predicting continued rise.

By Athena Xu

4/3, 13:33 EDT
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Key Takeaway

  • Crude oil prices hit a 5-month high in Q1 2024, with WTI and Brent rising 16.1% and 13% respectively, amid supply cuts and geopolitical tensions.
  • OPEC's extension of output curbs and intensified conflicts in Ukraine and the Middle East are expected to keep oil prices elevated into Q2.
  • Speculative net long positions in crude have reached a five-month peak, indicating strong investor confidence in further price increases.

Oil Prices Surge Amid Tightening Supply

The first quarter of 2024 witnessed a significant surge in oil prices, with both U.S. benchmark West Texas Intermediate (WTI) and European benchmark Brent crude reaching five-month highs. WTI climbed 16.1% to close at $83.20 a barrel, while Brent crude increased by 13%, closing at $87.50 a barrel. This upward trend was fueled by a tightening supply/demand outlook, extended OPEC output curbs, and escalating geopolitical tensions, particularly due to conflicts in Ukraine and the Middle East. The surge marks a reversal from the declines seen in the final quarter of 2023, driven by global recession fears.

Geopolitical Tensions Escalate

The geopolitical landscape significantly influenced oil prices in the first quarter. Ukraine's tactical shift to target Russian petroleum infrastructure and the Israel-Hamas conflict in the Gaza Strip, along with increased attacks on Red Sea shipping by Iran-backed Yemeni Houthis, posed direct threats to oil supply. These developments, coupled with OPEC's decision to extend its 2.2 million barrels-a-day output curbs, have tightened the global oil market. The International Energy Agency (IEA) raised its 2024 demand growth outlook by 110,000 barrels per day, citing these tensions as a key factor underpinning crude prices.

Speculative Investments and Market Outlook

Speculative investors have shown increased interest in oil futures, with net long positions reaching their highest levels in five months. This surge in speculative bets is supported by concerns over tightening supply and ongoing uncertainty in the Middle East. Energy analysts, including Warren Patterson from ING, have revised their short-term price forecasts upwards, anticipating that prices are likely to peak in the third quarter of 2024. Factors contributing to this outlook include persistent geopolitical tensions, OPEC's production curbs, and robust economic indicators from the U.S. and China.

Oil Companies Benefit from Price Rally

The rise in oil prices has positively impacted major oil and gas producers, as reflected in the performance of the Energy Select Sector SPDR Fund. The fund, which includes top holdings such as Exxon Mobil Corporation, Chevron Corporation, and ConocoPhillips, has benefited from the price rally. Additionally, downstream refinery, marketing, and transportation companies have seen significant gains, with RBOB Gasoline futures outpacing crude prices, highlighting the sector's profitability in the current market environment.

Street Views

  • Warren Patterson, ING (Bullish on oil prices):

    "Rising concerns over tightening supply along with the persistent uncertainty in the Middle East continue to support the uptrend in speculative bets... We have revised higher our short-term price forecast, while also adjusting the profile later in the year with prices likely to peak in the third rather than in the final quarter of the year as previously expected."