Crude oil prices set to end April flat amid easing Middle East tensions

Crude oil prices are poised to conclude the month of April without much change, following a notable 13% rally (Brent crude) witnessed during the first quarter of the calendar year 2024 (Q1CY24), driven by OPEC cuts (the source of about a third of the world’s oil), optimism regarding economic recovery, and conflicts in energy infrastructure between Ukraine and Russia.

Prices stabilised in April against a backdrop of easing tensions between Israel and Iran, anticipated delays in US rate cuts, and the potential for a cease-fire in the Middle East, all of which contributed to reducing the risk premium for crude.

According to recent media reports, U.S. Secretary of State Antony Blinken is ramping up efforts to negotiate a ceasefire in Gaza. This development has helped alleviate market concerns regarding the escalation of conflict in the Middle East.

Also Read: Oil prices decline amid Israel-Hamas peace negotiations, Fed rate cut hopes

As of now, Brent crude futures have seen a modest increase of 0.26% in April, while WTI crude futures have experienced a slight decline of 0.55%. Crude prices surged sharply in mid-April, reaching their highest level since October, driven by Iran’s unprecedented attack on Israel in retaliation.

This was seen as a response to a suspected Israeli strike on the Iranian Consulate in Damascus, Syria, earlier in the month. In response, Israel reportedly targeted three Iranian cities, although the damage was limited.

Market tensions have eased off subsequently, as there was no immediate hit to oil production and as attacks between the two countries appeared to have eased off.

Furthermore, major Middle Eastern countries refrained from escalating the conflict, leading to narrow trading in crude oil prices. Initially, analysts anticipated a strong Israeli retaliation against Iran. However, the United States and the European Union intervened by calming Israel by announcing a series of sanctions, including Iran’s oil sector.

Also Read: India’s oil imports from Russia drops in Feb, Saudi Arabia 2nd largest supplier

Further, recent media reports indicate that Russia continues to flood the markets with its cheaper oil, maintaining multi-month high exports of seaborne crude. India and China remain the primary customers for Russian crude.

On the demand side, global economic uncertainties and concerns about prolonged higher interest rates by the US Federal Reserve have contributed to dampened crude oil prices this month. Additionally, high US crude inventories have further subdued prices.

As we await the Federal Reserve’s interest rate decision on Wednesday, the focus remains on whether policymakers will maintain borrowing costs at record levels, a move generally seen as negative for commodities.

Also Read: Wall Street week ahead: All eyes on Federal Reserve’s interest rate decision

Investors will be closely monitoring Chair Powell’s remarks for insights into the timing and frequency of potential interest rate cuts this year, especially given the ongoing inflationary pressures.

The last time the US central bank chair spoke, he signaled that policymakers were likely to keep borrowing costs high for longer than previously anticipated, pointing to the lack of further progress on bringing inflation down, and to enduring strength in the labor market.

In terms of economic indicators, expectations suggest a slowdown in non-farm payroll growth to 210K in April from 303K in March. The unemployment rate is anticipated to hold steady at 3.8%, with monthly wage growth expected to remain unchanged at 0.3%, according to Trading Economics.

Also Read: US Fed meet ahead: What do dimming rate cut hopes mean for Indian stock market?

Crude prices outlook

In its recent report, ICICI Global Markets revised its Brent crude price projections for Q2 2024, raising the range from $75/bbl to $85/bbl to $80/bbl to $90/bbl. This adjustment incorporates the potential geopolitical uncertainty premium that may persist.

The report suggests the possibility of an overshoot to $95/bbl in the near term. Overall, the heightened price profile expected throughout 2024 has led to an increase in the average Brent crude price forecasts, from $80/bbl to $86/bbl for the year.

“For 2025, relatively balanced physical markets could result in an unchanged flat trading profile of $ 80/bbl to $90/bbl. The risks to our projections remain to the upside,” the report said.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.