Oil climbs 1% to five-month high on rising demand expectations

Crude prices edged up about 1% to a five-month high on Monday on expectations oil demand will climb following the release of positive economic news from the U.S. and China, while OPEC+ cuts and attacks on Russian refineries tighten global supplies. Brent futures rose 73 cents, or 0.8%, to $87.73 a barrel, while U.S. West Texas Intermediate (WTI) crude rose $1.04, or 1.3%, to $84.21. Both contracts were on track for their highest closes since Oct. 27. That increase in U.S. crude futures cut the U.S. diesel crack spread , which measures refining profit margins, to its lowest since May 2023 for a second day in a row. In the U. S., data from the Commerce Department showed the personal consumption expenditures (PCE) price index – the U.S. Federal Reserve’s preferred inflation gauge – moderated in February, with the cost of services outside housing and energy slowing significantly. Analysts said that keeps a June interest rate cut from the Fed on the table.

Lower interest rates reduce the cost of buying goods and services, which could boost economic growth and increase oil demand. In China, manufacturing activity expanded for the first time in six months in March, according to an official factory survey, supporting oil demand in the world’s largest crude importer. “Chinese oil demand is arguably the one missing factor outside of geopolitical headlines capable of taking oil prices to the next level,” Bob Yawger, director of energy futures at Mizuho, a bank, said in a note. “Strong summer gasoline demand and a rebound in China oil demand could be the one two punch that support $100 a barrel,” Yawger added. China also promised to import more high-quality products and services from France, after a European investigation into Chinese electric vehicle exports supported by Paris threatened to spark a tit-for-tat trade dispute between the two countries.

In Japan, optimism in the services sector climbed to a 33-year high in the first quarter on booming tourism and rising profits from price hikes, a central bank survey showed. In Europe, oil demand was firmer than expected, rising 100,000 barrels per day (bpd) on the year in February, Goldman Sachs analysts said, versus its forecast of a 200,000 bpd contraction in 2024. Top oil exporter Saudi Arabia may raise the official selling price (OSP) for flagship Arab Light crude in May after Middle East benchmarks strengthened last month, according to industry sources. In Russia, an OPEC+ member, Deputy Prime Minister Alexander Novak said the country’s oil companies will focus on reducing output rather than exports in the second quarter in order to evenly spread production cuts with other members of OPEC+, which brings together the Organisation of the Petroleum Exporting Countries and allied producers. Drone attacks from Ukraine have knocked out several Russian refineries, which is expected to reduce Russia’s fuel exports. Almost 1 million bpd of Russian crude processing capacity is offline from the attacks, affecting its high-sulphur fuel oil exports that are processed at Chinese and Indian refineries.