Oil price is nearing a 5-month high.
Oil futures headed close to a five-month high on Monday (March 18, 2024) after Ukrainian drone attacks on Russian energy infrastructure sent crude prices to their highest levels since end-October.
At the close of trading, the ICE Brent front-month crude futures contract was up 1.8% or $1.55 trading at $86.89 per barrel hitting $87 in after hours calls, the highest price level seen since October 30. Meanwhile, the NYMEX West Texas Intermediate settled at $82.72 per barrel, up 2.1% or 1.68%, the highest since November 2.
Russia's refineries have become the targets of sporadic Ukrainian drone attacks in recent months. Research conducted by Reuters suggests around 7% of Russia's refinery capacity is currently offline.
That's after an attack on Sunday caused a fire at the Slavyansk refinery in Krasnodar, the latest target for the Ukrainians. Other targets include Ryazan, Novoshakhtinsk, Norsi, Kirishi, Syzran and Kaluga. The attack on Slavyansk refinery was the thirteenth such attack since January 18.
While not all attacks were successful, a pattern of Ukraine strategically targeting Russian oil seems to be emerging, elevating risk premiums that are already high due to geopolitical upheaval in the Middle East.
Not just about supply fears
However, the upside does not appear to be down to supply fears alone. Demand uptick may also be on the horizon. For instance, market doubts about the direction of China - the world's biggest importer of crude oil - seem to be dissipating backed by positive data.
Industrial output rose 7% for January and February, faster than a 6.8% gain seen in December, the country's National Bureau of Statistics (NBS) said on Monday. It marked the best reading in almost two years.
Chinese retail sales, albeit down on December, also rose 5.5%. Both sets of figures follow improved exports and consumer inflation data. It may all lead to Beijing achieving its economic growth target of 5.0% on an annualized basis for 2024.
There are also signs of improved economic activity in the U.S. and India's crude demand remains strong. Speaking at CERAWeek, an energy conference organized by S&P Global in Houston, Texas, U.S., Amin Nasser, president and chief executive officer of Aramco, said he was expecting a "strong" oil market in 2024.
Earlier this month, oil producers' group OPEC maintained its upbeat global oil demand growth forecast of 2.25 million barrels per day (bpd). Consumer think-tank International Energy Agency also revised its own demand forecast for 2024 upward by 110,000 bpd to 1.3 million bpd.
Although well short of OPEC's upbeat forecast, IEA's upward revision has also fueled bullish sentiment. As has a recent decline in U.S. oil inventories. Last week, inventories fell for the first time in seven weeks by 1.5 million barrels to 447 million barrels in the week ended March 8, according to the Energy Information Administration.
The next release of EIA inventories data is on March 20. Another decline, in step with OPEC and Saudi Arabia's stance of maintaining production cuts to prioritize higher prices over volume, will likely send oil futures higher.
Furthermore, domestic U.S. crude production also fell by 100,000 bpd to 13.1 million bpd, down from the sort of record numbers that have recently seen the country being crowned the world's leading oil producer.
