Oil inches higher on expectation of more strikes on Russian refineries

New Delhi — Oil prices ticked up in Asian trade on Monday, extending gains from last week when prices rose nearly 4% on the view that supply was tightening, with the risks heightened by further attacks on Russian energy infrastructure.

Brent crude oil futures for May delivery climbed 32c, or 0.4%, to $85.66 a barrel by 4.16am GMT. The April contract for US West Texas Intermediate (WTI) crude was up 40c, or 0.5%, at $81.44. The more active May delivery contract for WTI traded 37c, or 0.5%, higher at $80.95 a barrel.

“The strikes on Russian refineries added $2-$3 a barrel of risk premium to crude last week, which remains in place as we start this week with more attacks over the weekend,” said Vandana Hari, founder of oil market analysis provider Vanda Insights.

But for the next substantial move up or down, crude will await fresh signals, Hari said.

On Saturday, one of the strikes sparked a brief fire at the Slavyansk refinery in Kasnodar, which processes 8.5-million metric tons of crude oil a year, or 170,000 barrels a day.

A Reuters analysis found the attacks have idled about 7% of Russian refining capacity in the first quarter. The refining complexes process and export crude varieties to several markets including China and India.

In the Middle East, Israeli Prime Minister Benjamin Netanyahu confirmed on Sunday he will proceed with plans to push into Gaza’s Rafah enclave where more than 1-million displaced people are sheltering, defying pressure from Israel’s allies. German Chancellor Olaf Scholz said the step would make regional peace “very difficult”.

This week, investors are eyeing the outcome of the US Federal Reserve’s two-day meeting that ends on Wednesday. That will bring more clarity on the timing of interest rate cuts, Tony Sycamore, a market analyst with IG, wrote in a note.

The Fed is likely to keep rates unchanged this month, while the possibility of interest rate cuts at the June meeting “is now a coin flip”, Sycamore said.

Lower interest rates would stimulate demand in the US, the world’s biggest oil consumer, supporting oil prices.

Both benchmark oil contracts posted gains last week despite a dip on Friday. Oil been rangebound for much of the last month, but on Thursday a bullish demand report from the International Energy Agency sent prices rising to their highest level since November.

The agency, which represents industrialised countries, had strengthened its demand outlook for the fourth time since November as Houthi attacks in the Red Sea drove crude and fuel carriers to divert, reducing the oil accessible to users. For the first time, IEA also predicted a slight supply deficit this year, instead of a surplus.

US fuel demand also supported prices as refineries completed some projects.

As of Friday’s close, Brent and WTI futures were up 11% and 13%, respectively, in 2024. 

Reuters