Brent crude ticked up closer to $90 per barrel today after yesterday the American Petroleum Institute reported a larger than expected draw in U.S. inventories and as geopolitical tensions remained intense.
The U.S. inventory report of the API showed draws across the board, with crude oil shedding 2.3 million barrels, with gasoline stocks down by 1.4 million barrels and middle distillate inventories down by 2.5 million barrels.
The geopolitical updates included yet another Ukrainian drone attack on a Russian refinery and Iran vowing to retaliate for Israel's strike on the Iranian consulate in Damascus that killed five people. Both these developments are cause for worry about, first, oil supply from one of the world's top three exporters, and, second, a significant escalation in the Middle East that could threaten the security of oil supply.
In addition to all this, Mexico's Pemex said it would reduce exports of crude oil by over 400,000 bpd as it diverts barrels to local processing capacity, Bloomberg reported this week. Citing unnamed sources, the publication wrote that Pemex had canceled several delivery contracts with U.S., European, and Asian clients to move more oil to the new Dos Bocas refinery aiming to boost domestic fuel production ahead of the presidential vote in June.
Now focus is on the OPEC+ meeting today, where members are expected to stay the course of limited oil production until the end of June, at least. This means persistently tight supply that will likely push prices higher still, especially as neither Ukraine has any intention to stop droning Russian refineries nor Israel has any intention of changing course in what increasingly seems like a war on all anti-Israel groups in the Middle East.
Even so, some analysts still expect lower prices-because of Chinese demand. "Brent oil futures should track closer to $75 to $80 a barrel in coming months given our view that China's oil demand growth will disappoint," Commonwealth Bank of Australia analyst Vivek Dhar told Bloomberg earlier today.
This is an interesting expectation given the latest manufacturing figures out of Beijing that showed a pickup in activity-for the first time in six months.
By Irina Slav for Oilprice.com
Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More
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Comments
OPEC+ has no reason to change its current production policies since the market is still relatively balanced despite getting tighter. Moreover a Brent crude at $90 is an acceptable price for the majority of OPEC+ members as it enables them to balance their budgets.
However, if the geopolitical tension in the Middle East escalates , we could expect Brent crude to rise beyond $100.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert