Oil prices surge amid Middle East tensions and Russia-Ukraine war

Tensions in the Middle East and ongoing conflicts between Russia and Ukraine have elevated crude oil prices. Notwithstanding the fragile global economic climate, crude oil prices experienced a dip in the first quarter of the year, as the OPEC+ group of producers continued to restrict supply.

Near the start of April 2024, the ICE Brent crude oil price has reached its peak in almost five months, inching towards US$90 per barrel. This is a significant improvement from the first quarter of 2024 when it stood at US$81.7 per barrel. Nevertheless, the market remains apprehensive about the fragile global economic outlook.

The International Monetary Fund (IMF) predicts a global economic growth rate (GDP) of +3.1% for 2024, mirroring the growth rate of 2023. However, major economies such as the United States and China are experiencing a slowdown. The US economy is projected to grow by +2.1% in 2024 (down from +2.5% in 2023), while the Chinese economy is anticipated to grow by +4.6% (down from +5.2% in 2023), influenced by the ongoing real estate crisis since 2023.

The Federal Open Market Committee (FOMC) of the Federal Reserve maintained its policy interest rate at the level of 5.25 – 5.50% during the meetings on January 31 and March 20, as predicted by the market. This indicates a lack of urgency to reduce interest rates as inflation remains above the 2% target (US inflation in March 2024 stood at 3.5%).

A Reuters Poll suggests that the Fed will begin to cut interest rates in the latter half of 2024 (previously expected to start in the second quarter of 2024), which will likely stimulate the economy and oil consumption.

Geopolitical factors and international political conflicts, such as the ongoing war situation between Israel and Hamas, which began on October 7, 2023, continue to pose risks. Ceasefire talks have proven unsuccessful, and concerns over potential escalation persist. Attacks have also erupted in Iran-backed forces in Iraq and Syria, including an Iranian soldier who lost his life.

Cargo ships

The situation in the Red Sea continues to affect oil transportation, with Iran-supported Houthi groups in Yemen persistently attacking cargo ships passing through the area. This has forced most cargo ships to reroute through the Cape of Good Hope, significantly increasing shipping distances and costs.

Furthermore, continuous drone attacks on Russian refinery facilities have led to the closure and repair of several refineries. Platts estimates that these attacks have affected Russia’s oil refining capacity by approximately 1 million barrels per day, or about 16% of total refining capacity.

As a result, Russia is expected to reduce its exports of refined oil, especially diesel. In March 2024, Russia’s exports of refined oil decreased by 9% compared to the previous month, reaching 2.26 million barrels per day, the lowest since November 2023.

The Russian government plans to reduce crude oil production in the second quarter of 2024 to 9 million barrels per day (Russia produced 9.43 million barrels per day in February 2024) to align with the reduced refining capacity.

The international market analysis team of PTT Public Company Limited predicts that the price of ICE Brent crude oil in the second quarter of 2024 will trend within the range of 80-95 US dollars per barrel. This forecast is influenced by geopolitical factors and the supply tightness resulting from the production control policy of OPEC+.

The OPEC+ group, consisting of eight member countries including Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman, has decided to extend the Voluntary Cut of 2.2 million barrels per day until the end of the second quarter of 2024. The International Energy Administration (IEA) forecasts that the global oil market will be in a deficit of 0.28 million barrels per day after being in surplus for the past two years.

Global economy

Key factors to monitor in the second quarter include whether the global economy will continue to recover, recent positive trends in the manufacturing sectors of the United States and China, and geopolitical tensions in the Middle East, including the possibility of escalation between Russia and Ukraine.

Additionally, global refinery maintenance shutdowns are at their peak in April 2024, reaching 8.3 million barrels per day, which may prevent crude oil prices from rising significantly.