Current crude oil prices are elevated due to conflicts in the Middle East, with ongoing tensions between Russia and Ukraine exacerbating the situation. Amidst the fragile global economic landscape, crude oil prices have declined in the first quarter of the year, whilst the OPEC+ group of producers continues to tightly control supply.
The ICE Brent crude oil price at the beginning of April 2024 is at its highest level in nearly 5 months, nearing $90 per barrel. This marks a recovery from the first quarter of 2024 when it was at $81.7 per barrel. However, the market remains concerned about the fragile global economic outlook. Although the International Monetary Fund (IMF) forecasted a global economic growth rate (GDP) of +3.1% for the year 2024 compared to the previous year (2023 was also at +3.1%), the economies of major countries like the United States and China are slowing down. In 2024, the US economy is expected to grow by +2.1% compared to the previous year (2023 was at +2.5%), and the Chinese economy is expected to grow by +4.6% compared to the previous year (2023 was at +5.2%), which has been affected by the ongoing real estate crisis since 2023.
Regarding the monetary policy of the United States, the Federal Open Market Committee (FOMC) of the Federal Reserve maintained its policy interest rate at the level of 5.25 - 5.50% during the meetings on 31 January 2024 and 20 March 2024, as expected by the market. This signalled that there is still no rush to cut interest rates because inflation remains above the 2% target (US inflation in March 2024 was at 3.5%). Reuters Poll forecasts that the Fed will begin to cut interest rates in the latter half of the year 2024 (previously expected to start in the second quarter of 2024), which, whenever implemented, will stimulate the economy and oil consumption.
Keep an eye on risks from geopolitical factors and international political conflicts, such as the war situation between Israel and Hamas, which started on 7 October 2023 and continues continuously. Ceasefire talks between Israel and Hamas have ended unsuccessfully, and concern over the possibility of spreading further still remains. Although fighting between Israel and Hezbollah in Lebanon has subsided, attacks have erupted in Iran-backed forces in Iraq and Syria, including an Iranian soldier who died.
The situation in the Red Sea continues to affect oil transportation, as Houthi groups in Yemen, supported by Iran, continuously attack cargo ships passing through the Red Sea area. This has led most cargo ships to divert their routes and sail through the Cape of Good Hope instead, increasing shipping distances and costs significantly.
In addition, drones are being used to attack Russian refinery facilities continuously, leading to the closure and repair of several Russian refineries. Platts estimates that these attacks have impacted Russia's oil refining capacity by approximately 1 million barrels per day, or about 16% of total refining capacity. As a result, Russia is expected to reduce its exports of refined oil, especially diesel. In March 2024, Russia's exports of refined oil decreased by 9% compared to the previous month, reaching 2.26 million barrels per day, the lowest since November 2023. The Russian government plans to reduce crude oil production in the second quarter of 2024 to 9 million barrels per day (Russia produced 9.43 million barrels per day in February 2024) to align with the reduced refining capacity.
The international market analysis team of PTT Public Company Limited predicts that the price of ICE Brent crude oil in the second quarter of 2024 will trend within the range of 80-95 USD dollars per barrel. This forecast is influenced by geopolitical factors and the supply tightness resulting from the production control policy of OPEC+.
The OPEC+ group, consisting of 8 member countries including Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman, has decided to extend the Voluntary Cut of 2.2 million barrels per day until the end of the second quarter of 2024. The International Energy Administration (IEA) forecasts that the global oil market will be in a deficit of 0.28 million barrels per day after being in surplus for the past two years.
Key factors to monitor in the second quarter include whether the global economy will continue to recover, recent positive trends in the manufacturing sectors of the United States and China, and geopolitical tensions in the Middle East, including the possibility of escalation between Russia and Ukraine. Additionally, global refinery maintenance shutdowns are at their peak in April 2024, reaching 8.3 million barrels per day, which may prevent crude oil prices from rising significantly.
KIPLINGER (https://www.kiplinger.com/investing/when-is-the-next-fed-meeting)
Bloomberg (https://www.bloomberg.com/opinion/articles/2023-08-20/china-zhongzhi-s-crisis-exposes-the-perils-of-private-credit)
Reuters (https://www.reuters.com/world/middle-east/iran-says-it-will-retaliate-israels-attack-its-damascus-consulate-2024-04-02/)
The Moscow Times (https://www.themoscowtimes.com/2024/01/25/ukraine-claims-overnight-attack-on-russia-oil-refinery-a83849)