Oil hits 4-month high after Ukraine’s drone attack on Russian refinery, OPEC cuts; Brent at $87/bbl
International crude oil prices again hit a four month-high mark on Tuesday, March 19, after breaking above range-bound trading last week, but gains were limited by the prospect of rising exports from Russia as Ukrainian attacks on oil infrastructure curb domestic refining activity.
The Brent crude oil futures contract was up 33 cents at $87.22 per barrel while US West Texas Intermediate (WTI) prices were up 31 cents at $82.47. The WTI April contract, which expires on Wednesday, was up 31 cents at $83.03, according to news agency Reuters.
Both benchmarks hit highs not reached since early November, led by lower crude exports from Saudi Arabia and Iraq along with signs of stronger demand and economic growth in China and the US. On the domestic front, crude oil futures were last trading 1.45 per cent higher at ₹6,943/bbl on the multi commodity exchange (MCX).
What’s fueling crude oil prices?
-In Russia, exports are rising after Ukrainian drone attacks on the country’s oil infrastructure putting pressure on oil prices. Traders assessed how Ukraine’s recent attacks on Russian refineries would affect global petroleum supplies.
-Ukraine has stepped up attacks on Russian oil infrastructure this year, with at least seven refineries targeted by drones just this month. The attacks have shut down seven per cent, or around 370,500 barrels per day (bpd) of the Russian refining capacity, according to Reuters.
-According to JP Morgan analysts, the attacks will likely reduce Russian crude runs by up to 350,000 bpd, in addition to scheduled maintenance closures. This will boost US crude prices by $3 per barrel. The lower primary runs would lead to higher crude oil exports.
Also Read: Explained | Why did OPEC+ members extend oil output cuts to mid-2024
-Russia will increase oil exports through its western ports in March by almost 200,000 bpd, against a monthly plan for 2.15 million bpd. Even if the attacks do not lead to a direct loss of Russian crude supply, there is still a spillover effect for oil prices from surging refined product margins.
-The Organisation of Petroleum Exporting Countries and its allies (OPEC+) led by Saudi Arabia and Russia agreed earlier this month to extend voluntary oil output cuts of 2.2 million bpd into the second quarter or mid-2024. Saudi Arabia, the de facto leader of the OPEC cartel, said it would extend its voluntary cut of one million bpd through the end of June.
-Crude oil prices were also weighed down by uncertainty over US interest rates ahead of the US Federal Reserve policy meeting. Analyst expect Jerome Powell-led Federal Open Market Committee (FOMC) to maintain the status quo on interest rates.
Where are prices headed?
Chinese output data revealed its highest growth in the past two years. This surge propelled crude oil prices to four-and-a-half-month highs, according to analysts. Also, prices surged following Iraq’s announcement of reducing oil exports and Saudi Arabia experiencing a second consecutive month of decreased oil exports.
‘’Expectations indicate continued volatility for crude oil. Support levels are anticipated at $81.40–80.80, with resistance expected around $82.70-83.20 for today’s session. In terms of INR, crude oil is projected to find support at ₹6,770-6,700, while resistance is likely at ₹6,920-6,990,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.
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