Oil stretches gains to a fifth straight session as Middle East tensions rise

By Myra P. Saefong and William Watts

Brent oil futures rise above key $90-a-barrel mark

Oil prices finished higher Thursday for a fifth straight session, buoyed by rising tensions in the Middle East after Israel's recent strike on Iran's consulate in Syria.

Crude has also found support from tightening global supplies and signs of strong U.S. fuel demand, which lifted prices on Wednesday and again on Thursday to their highest levels since late October.

Price moves

West Texas Intermediate crude CL00 for May delivery CL.1 CLK24 rose $1.16, or 1.4%, to settle at $86.59 a barrel on the New York Mercantile Exchange.June Brent crude BRN00 BRNM24, the global benchmark, climbed by $1.30, or nearly 1.5%, to end at $90.65 a barrel on ICE Futures Europe. Brent and WTI oil both marked their highest front-month settlements since Oct. 20, according to Dow Jones Market Data.May gasoline RBK24 added 1.2%, to $2.79 a gallon, while May heating oil HOK24 gained 0.3%, to $2.74 a gallon.Natural gas for May delivery NGK24 settled at $1.77 per million British thermal units, down 3.6%.

Market drivers

Crude is pricing "additional geopolitical risk" after a call between U.S. President Joe Biden and Israeli Prime Minister Benjamin Netanyahu ended with "escalatory comments and rumors of Iran's response to Israel's recent attack on Iran's consulate in Syria," said Rebecca Babin, senior energy trader at CIBC Private Wealth US.

"Though it is unlikely crude supply will be directly impacted as part of this escalation, the fear of the unknowns is keeping traders looking to upside tail exposure through ... [an] increasing geopolitical risk premium, she told MarketWatch.

WTI and Brent ended Thursday at their highest since late October.

Prices had also found support Wednesday as a larger-than-expected rise in U.S. crude inventories was offset by a large drop in gasoline stocks. Perhaps more important, the weekly data from the Energy Information Administration indicated gasoline demand continued to run hot last week.

Oil has rallied to begin 2024, alongside gains for a number of other commodities.

Oil flourishes at "times of uncertainty, fear and wars," and as Middle East tensions continue to simmer, oil is "climbing new hills," Manish Raj, managing director at Velandera Energy Partners, told MarketWatch.

"We continue to buy the dips," he said. As was seen in early Thursday trading, he said, prices sometimes "take a breather as traders book gains, but we believe oil is marching ahead."

The escalation of tensions in both Iran and Ukraine, coupled with members of the Organization of the Petroleum Exporting Countries and its Russia-led allies. known as OPEC+, confirming the continuation of production cuts until June, has "fueled this extension of gains" in oil, CIBC's Babin said.

However, in a recent note, Caroline Bain, chief commodities economist at Capital Economics, said that while investors have turned more positive on the outlook for oil prices, bulls may run into trouble ahead.

Capital Economics expects OPEC+ to begin to unwind its production cuts in the second half of 2024 on concerns about loss of market share, she wrote (see chart below).

"This will put downward pressure on prices later this year, which will persist into 2025-26. We forecast that the price of Brent will have slipped to $60 per barrel by end-2026, from $89 at the time of writing," she said.

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For now, the narrative surrounding oil has "shifted from hand wringing about demand at the end of 2023 (with speculations of a possible dip to $50) to optimistic forecasts of crude reaching $100 by summer," Babin said.

"The outlook for the next few months appears promising, with strong fundamentals, ... improving macroeconomic indicators, and mounting geopolitical tensions," she said.

Natural-gas futures, meanwhile, ended lower as data from the EIA Thursday revealed a weekly decline of 37 billion cubic feet in domestic supplies for the week ended March 29.

On average, analysts forecast a fall of 39 billion cubic feet, according to a survey conducted S&P Global Commodity Insights. With the arrival of milder weather in early April, many analysts now expect injection season, a period of rising inventories in preparation for an increase in cooling demand for the summer, will begin in the week ending April 5, the survey showed.

-Myra P. Saefong -William Watts

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04-04-24 1509ET

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