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Oil prices rose to a four-month high on Thursday after the west’s energy watchdog forecast demand would exceed market supply, reversing its previous prediction of a surplus.
Brent crude, the international benchmark, breached $85 for the first time since early November, rising 1.3 per cent to $85.15. That brings its rise so far this year to 11 per cent. The US benchmark, West Texas Intermediate, rose 1.7 per cent to $81.04 a barrel.
The International Energy Agency said the oil market would be in a “slight deficit” this year, as it reduced its forecast for global supply growth to 800,000 barrels a day, from 1.7mn in its February report. The new estimate assumes that voluntary cuts made by Opec+ members to try and support prices will remain in place throughout 2024.
The watchdog, which is largely funded by the OECD, also upgraded its forecast for consumption growth marginally to 1.3mn barrels a day.
The revisions marked a reversal for an agency that, as recently as January, was forecasting a “substantial surplus” in supply, based on expectations of record output from the US, Brazil, Guyana and Canada.
Thursday’s moves extend gains of more than 2.5 per cent from the previous trading session, which came after Ukraine carried out drone strikes on oil refineries deep inside Russia and a report showed a decline in US stockpiles.
Hedge funds have also been steadily increasing their net bets on rising prices since December, giving further support to the market, according to US Commodity Futures Trading Commission data.
“The market has been immune to geopolitics [in the Middle East], and I think rightly so, but the focus is once again centring more on Russia,” said Ole Hansen, head of commodity strategy for Saxo Bank.
The latest gains push oil prices further above levels at which government budgets in Saudi Arabia and Russia are seen as likely to come under strain. But higher prices could pose a problem for US President Joe Biden ahead of a tough re-election fight against Donald Trump.
Oil prices have traded in a tight range of just a few dollars over the past month, but began to edge higher earlier in March after Opec+ members said they would extend voluntary production cuts, which were due to expire at the end of this month, by another three months.
Recent price gains could be seen as a vindication for Saudi Arabia, which has sacrificed market share in order to keep prices at levels that will enable it to fund a series of ambitious spending projects to diversify its economy.
Price moves had remained subdued, despite geopolitical tensions sparked by Israel’s war with Hamas and attacks on shipping in the Red Sea by Yemen-based Houthi rebels, as traders bet record production growth by Opec’s competitors would keep the market amply supplied.
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