Oil market balance remains uncertain as Russian export volumes rebound

Business a.m.

Oil prices held steady on Tuesday, hovering near four-month highs reached last week, but gains were capped by the prospect of increased exports from Russia. 

Reports showed that the market had broken out of its range-bound trading pattern last week, supported by supply outages and dwindling U.S. fuel inventories, but any potential upside was kept in check by the resumption of Russian oil supply to some European refineries and planned production increases from major oil producers.

The Brent crude futures contract for May delivery traded 10 cents higher at $86.99 a barrel, while U.S. West Texas Intermediate (WTI) crude prices for the April contract were 12 cents higher at $82.28. The WTI contract for April, which is set to expire on Wednesday, was trading at $82.85 per barrel. 

The rally in oil prices last week was driven by lower crude exports from key producers such as Saudi Arabia and Iraq, and signs of stronger demand in China and the United States. Saudi Arabia reduced its crude exports by 500,000 barrels per day (bpd) in March, while Iraq’s crude exports declined by 400,000 bpd in the first half of March. At the same time, China’s economy showed signs of improvement, with factory activity growing at its fastest pace in five months in March. 

According to UBS analyst Giovanni Staunovo, the recent positive economic data and OPEC+’s decision to extend voluntary production cuts through the end of June have provided a significant boost to oil prices. Staunovo expects Brent crude prices to continue trading in the $80-90 per barrel range this year, and forecasts a price of $86 per barrel by the end of June. 

Despite recent attacks on its oil infrastructure, Russia’s crude oil exports have risen, putting downward pressure on prices. JP Morgan analysts estimate that drone strikes by Ukraine could reduce Russian crude oil production by up to 300,000 barrels per day, in addition to previously scheduled maintenance closures. However, they noted that the lower production would be partially offset by increased crude exports, as some of the unrefined oil would likely be sold in its raw form. 

According to the latest data, Russia plans to increase crude oil exports from its western ports in March by nearly 200,000 barrels per day (bpd) compared to the previous month. However, this is still well below the country’s monthly export target of 2.15 million bpd. Meanwhile, uncertainty surrounding U.S. interest rates ahead of the Federal Reserve’s policy meeting has also put pressure on oil prices. Investors are watching closely to see whether the Fed will raise interest rates by 25 or 50 basis points, with potential implications for global demand. Higher rates could slow economic growth and reduce crude oil demand.

DBS Bank’s energy sector team lead, Suvro Sarkar, noted that the oil market may be entering a period of consolidation, as investors wait for signals on interest rate cuts from the upcoming Federal Open Market Committee (FOMC) meeting. He pointed out that oil prices have already risen significantly over the last two weeks in response to increased geopolitical risk following attacks on Russian refineries.