Crude oil prices have posted the biggest first quarter price push since 2009 supported by production cut led by the producer’s cartel OPEC and Russia and the sanctions imposed by the US on Iran and Venezuela. In addition, tariff impositions by the US over China created a fear of global economic slowdown, hampering global energy demand.
Although the trade war concerns added pressure, overall stronger consumption data of January gave strength to crude oil prices. Economic data showed an increase in consumption in January to 1.55 million bpd from a year earlier. Overall global demand increased by nearly 2 million bpd during the month. This growth was visible in both emerging and developed markets.
Meanwhile, Saudi Arabia cut its crude output in January by about 400,000 barrels per day (bpd) as part of its pledge to reduce production to prevent a supply glut. Prices during February remained oscillating but closed in the green owing to slowdown in manufacturing activities in China suggested by the weaker economic data. In March, lower supply figures from OPEC giants and the US gave an indefinite support to prices. Brent crude continued its upside momentum of 7 per cent gain in February, attaining a high of $67.73/bbl and around 3 per cent in March making a high of $68.89/bbl on a month-on-month basis.
As the US aims to curb Iran’s crude exports by about 20 per cent to below 1 million bpd from May, it is likely to curtail waivers on Iran’s few remaining customers. Also, the market is moving towards the balance which is not in favour of major oil producers as they would be looking to attain higher price levels to increase revenue. Thus, crude oil prices are expected to have a rising outlook in the upcoming quarter owing to major supply-side fundamentals.
In the coming months, eyes will be on OPEC nations and Russia who are expected to formulate a strategy on crude exports. The ongoing tussle between US President Donald Trump and the OPEC nations has resulted in a directional uncertainty among the traders in global market. Trump's tweet on OPEC may have pushed prices higher, but are rapidly losing steam.
The author is a fundamental research analyst at Karvy Comtrade Limited