Oil prices held steady on Monday, with Brent crude briefly surpassing $86 per barrel for the first time since November, as Ukraine stepped up its attacks on Russian energy infrastructure, fueling concerns over global supply. The escalating conflict has added a risk premium to crude prices, which remained in place as the week began with more attacks over the weekend.
According to Vandana Hari, founder of oil market analysis provider Vanda Insights, "The strikes on Russian refineries added $2-$3 per barrel of risk premium to crude last week, which remains in place as we start this week with more attacks over the weekend." Over the weekend, drone attacks caused fires at the Rosneft-owned Syzran oil refinery and at a private Slavyansky oil refinery in the Krasnodar region.
A Reuters analysis found that the attacks have idled around 7% of Russian refining capacity in the first quarter. In response to the refinery outages, Russia is set to increase oil exports through its western ports in March by almost 200,000 barrels per day (bpd) against the monthly plan to 2.15 million bpd, according to market participants.
In addition to the geopolitical tensions, the oil market is also closely watching the fate of monetary policy in major economies, as many central banks have maintained high interest rates to quell persistent inflation. The outcome of the U.S. Federal Reserve's two-day meeting, which ends on Wednesday, is expected to provide clarity on the timing of interest rate cuts.
Tony Sycamore, a market analyst with IG, noted that the Fed will likely keep rates unchanged this month, while the possibility of an interest rate cut at the June meeting "is now a coin flip." Lower interest rates could stimulate demand in the U.S., the world's biggest oil consumer, supporting oil prices.
Both oil contracts posted gains last week, with prices hitting their highest level since November, buoyed in part by the International Energy Agency's (IEA) fourth upward revision of its 2024 demand outlook since November. The IEA now expects oil demand growth to come in at over 1.3 million bpd this year, up from 1.2 million bpd in last month's report.
On the supply side, Iraq announced on Monday that it plans to reduce its crude exports in the coming months by roughly 100,000 bpd from last month's levels to compensate for any rise above its OPEC+ quota in January and February. Iraq has committed to voluntary cuts agreed with the OPEC+ group of oil-exporting countries, which were recently extended into the second quarter.
The prospect of peace between Israel and Hamas has also become more distant, as Israel's Prime Minister Benjamin Netanyahu said he would proceed with a planned attack on Rafah despite advice to the contrary from Israel's allies. This development further contributes to the geopolitical tensions affecting the oil market.
As the week progresses, oil traders will be closely monitoring the Fed's two-day meeting, which starts on Tuesday, for any indications of future monetary policy changes. Although no actual rate cuts are expected, most anticipate the central bank to keep rates unchanged.
Meanwhile, CERAWeek, a prominent energy conference, begins in Houston, with several Big Oil chief executives slated to speak during its first day, including TotalEnergies' Patrick Pouyanne, Aramco's Amin Nasser, and Exxon's Darren Woods. The insights and perspectives shared by these industry leaders may provide further guidance on the future direction of the oil market.
