Oil prices rebounded and ended the week with positive gains, as supply uncertainty in the Middle East offset the pressure from rising US crude inventories and production. West Texas Intermediate crude for March delivery rose $1.39, or 1.8%, to settle at $78.03 a barrel on the New York Mercantile Exchange, while April Brent crude, the global benchmark, climbed $1.26, or 1.5%, to $82.86 a barrel on ICE Futures Europe. Gasoline and heating oil also saw increases in their prices.
The volatility of oil prices can be attributed to factors such as uncertainty in the Middle East, the state of the economy, and interest rates. Craig Erlam, senior market analyst at OANDA, explained that these factors generate large price movements. Despite the recent inventory build reported by the US Energy Information Administration, Erlam believes that oil prices remain at reasonable levels that won’t be a concern from an inflationary standpoint.
Cease-fire talks in the Middle East have not led to any breakthroughs, and two OPEC+ members, Iraq and Kazakhstan, have promised to address any excess output above the agreed voluntary cuts. This suggests that any declines in oil prices are likely to remain limited. The International Energy Agency (IEA) maintained its forecast for oil-demand growth this year at 1.2 million barrels a day, down from 2.3 million barrels a day in 2023, citing slower economic growth. However, traders seem to favor OPEC’s more optimistic demand forecast of 104.4 million barrels a day.
In contrast to the positive trend in oil prices, natural gas futures in the US hit their lowest level since June 2020. This was due to a smaller-than-expected decline in domestic supplies, as reported by the US Energy Information Administration.
Overall, while oil prices experienced volatility throughout the week, they rebounded and ended with gains. The uncertainty in the Middle East and the positive performance of the equity market have contributed to the favorable outlook for oil prices. Additionally, the demand for oil remains robust, which further supports the positive sentiment among traders.
