Oil futures: Crude rallies 1% as Middle East tensions ratchet up
Quantum Commodity Intelligence – Crude oil futures Friday were trading higher higher, leaving benchmarks narrowly lower on the week as escalating Middle East tensions offset inflationary concerns that had weighed on prices.
Front-month Jun24 ICE Brent futures were trading at $90.65/b (1650 GMT), compared to Thursday's settle of $89.74/b and challenging near six-month highs with a peak of $92.18/b on Friday.
At the same time May24 NYMEX WTI was trading at $85.95/b, versus a high of $87.63/b and Thursday's settle of $85.02/b.
Tensions surrounding a potential Iranian attack on Israel increased with the Wall Street Journal reporting Friday that an unnamed US source said Israel is preparing for a possible strike, although noted that Tehran has taken no final decision.
"The geopolitical risks remain elevated. The US and its allies believe Iran, or one of its proxies, is preparing to launch a major missile or drone strike in the coming days on Israel," said ANZ commodity strategist Daniel Hynes.
Reports from Israeli press on Friday that Iran could launch a major drone and missile attack this weekend sent crude benchmarks spiralling to the highest levels since last October.
On Thursday, Israel said it was fully prepared for an incoming strike with the country "on alert and highly prepared for various scenarios, and we are constantly assessing the situation," an IDF spokesperson commented.
But according to the Axios website, Iranian Foreign Minister Hossein Amir-Abdollahian told his German counterpart on Thursday that Iran is determined to respond to Israel's bombing of its consular building in Damascus last week but will do so in an "appropriate" and limited way.
Last Friday, Jun24 Brent futures closed at $91.17/b, while May24 WTI settled at $86.91/b.
OPEC
OPEC stuck with its bullish outlook on global oil demand Thursday while trimming its outlook on 2024 supply, which would push the market even further into deficit by next quarter.
The producer group sees oil demand growth at at 2.25 million bpd for 2024 and 1.85 million bpd in 2025, including a hefty 2.7 million bpd in 3Q24 during the peak summer travel season.
"The robust oil demand outlook for the summer months warrants careful market monitoring, amid ongoing uncertainties, to ensure a sound and sustainable market balance," OPEC said.
However, IEA cut its 2024 oil demand forecast by 130,000 bpd on Friday after a weaker-than-expected first quarter, followed by another slowdown next year and a return to baseline "normalisation."
The energy watchdog now sees 2024 oil demand growth at 1.2 million bpd, which slows for a second straight year to 1.1 million bpd in 2025.
The upside was capped by broader economic concerns as persistently high inflation in both the US and Europe has meant an uncertain timetable for rate cuts this year, in turn curbing economic growth.
"Especially worrying for the hopes of a Fed rate cut was the fact that broader core services drove the upside surprise, which rhymes well with recent signs of continuing strong wage inflation and a tight labour market," said Danske Bank in its latest research note.
"Underlying price pressures not only remain too high for comfort, but also show signs of accelerating in early 2024," added the report, noting the US CPI was up by 0.4% on a monthly basis in March and 3.5% on an annual basis.
Meanwhile, Europe held rates unchanged but opened the door to a first reduction in June: "The ECB held monetary policy steady, though we view the accompanying statement as laying the groundwork for a probable ECB rate cut in June," said Wells Fargo in its latest report.
