Oil inches higher ahead of Opec+ supply decision

Singapore — Oil prices edged up on Friday and were set to end the week modestly higher as markets awaited an Opec+ decision on supply agreements for the second quarter amid differing demand indicators from key consumers US and China.

Brent futures for May climbed 27c, or 0.33%, to $82.18 a barrel by 4.03am GMT, while US West Texas Intermediate (WTI) for April rose 20c, or 0.26%, to $78.46.

WTI is on track for at least a 2.5% increase this week, while Brent is holding near last week's settlement price. Brent has hovered comfortably above the $80 mark for three weeks.

“Brent crude prices continued to trade sideways this week.... Brent at $83 a barrel has shown recent strength although fundamentals remain tilted to oversupply,” said BMI analysts in a client note.

“Expectations of a continuation of Opec+ production cuts into [the second quarter of 2024] is also weighing on sentiment as soft demand is expected to persist.... However, timespreads for Brent futures contracts have widen. The move to stronger backwardation [market structure] will be supportive of a more bullish stance for prices as markets are pricing in tightening in the months ahead,” the analysts said.

A Reuters survey showed oil cartel Opec pumped 26.42-million barrels a day (bbl/day) in February, up 90,000bbl/day from January. Libyan output rose month-on-month by 150,000bbl/day.

A decision on extending the cuts is expected in the first week of March, sources have said, with individual countries expected to announce their decisions.

Increasing possibilities of Saudi-led Opec+ continuing with the supply cuts beyond the first quarter, potentially till the end of 2024, was likely to keep oil prices above $80 a barrel, said DBS Bank energy sector team lead Suvro Sarkar.

Supporting prices, the Federal Reserve’s preferred inflation gauge, the US personal consumption expenditures (PCE) index, showed January inflation in line with economists’ expectations, keeping a June interest rate cut on the table. This in turn could lower consumer costs and spur fuel buying activity.

However, a mixed bag of February purchasing managers index (PMI) data from China, the world’s top oil consumer, capped price gains.

China’s manufacturing activity in February contracted for a fifth consecutive month, an official factory survey showed on Friday, raising pressure on Beijing policymakers to roll out further stimulus measures as factory owners struggle for orders.

The official non-manufacturing purchasing managers index (PMI), which includes services and construction, however rose to 51.4 from 50.7 in January, the highest since September.

“Demand side we concur that quarter two will have hiccups and we are projecting Brent to average lower in the second quarter of 2024 compared to the first quarter of 2024, before rebounding in the second half of 2024 on the back of the potential rate cut scenario, which should boost fund flows towards riskier assets,” said DBS Bank’s Sarkar.

Reuters