Oil prices remained close to a four-and-a-half month high on Tuesday, driven by reduced exports from Iraq and Saudi Arabia, which indicated tighter oil markets. However, market sentiment was cautious ahead of a Federal Reserve meeting.
Read more: Oil prices extend gains ahead of anticipated Fed meeting, rising supply risks
The May expiration of Brent oil futures saw a 0.1 percent increase, reaching $86.93 per barrel, while West Texas Intermediate (WTI) crude futures stabilized at $82.19 per barrel by 20:14 ET (00:14 GMT). Both contracts experienced a more than 2 percent increase on Monday and approached levels last seen in early November.
Over the past week, oil prices surged due to increased refinery activity in the U.S., improved demand from China, and ongoing disruptions in the Middle East, all contributing to a tightening outlook for oil markets. Iraq, the second-largest producer in the Organization of the Petroleum Exporting Countries (OPEC), announced that it would reduce crude exports to compensate for higher production in 2024.
Declining crude exports
Data from Saudi Arabia indicated that crude exports from the largest OPEC producer declined for the second consecutive month in January, while attacks in Russia disrupted a significant fuel refinery. These signs of tighter supplies coincided with positive economic indicators from major crude consumers, particularly China.
Industrial production, fixed asset investment, and travel demand in China showed better-than-expected growth in the first two months of 2024, with travel demand recovering to pre-COVID levels during the Lunar New Year holiday. However, it remains uncertain whether China can sustain this momentum in the coming months, given the persistently weak consumer spending and an unexpected rise in unemployment during the January-February period.
Fed’s meeting
The focus now shifts to the conclusion of the two-day Federal Reserve meeting on Wednesday, where it is widely anticipated that the central bank will maintain interest rates at their current levels. However, market participants are cautious of any potentially more hawkish signals from the central bank, considering the overall resilience of the U.S. economy and recent signs of stubborn inflation. While a robust U.S. economy bodes well for fuel demand as the world’s largest consumer, the possibility of higher interest rates over an extended period could potentially dampen demand later in 2024.
In addition to the Fed, market attention this week is also directed towards a series of purchasing managers index (PMI) readings for March from the U.S. and other major economies.
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