Oil prices continued their upward trajectory, reaching a five-month high, bolstered by indications of a reduction in US crude inventories and reaffirmed commitments from OPEC+ ministers to uphold existing supply cuts. This surge in oil prices comes amidst a backdrop of geopolitical tensions and supply disruptions, contributing to a bullish market sentiment.
Brent crude approached the $90 per barrel mark following a report from the American Petroleum Institute revealing a 2.29 million barrel decrease in nationwide crude stockpiles during the previous week. This report, preceding the official government data release scheduled for later on Wednesday, also highlighted reductions in gasoline and distillate inventories, further fueling optimism within the oil market.
Beyond the front-month futures prices, the oil options market exhibited signs of bullish sentiment, with traders increasingly seeking protection against further price increases. Notably, Brent’s second-month options skew transitioned from its typical put skew to a bias towards calls, indicative of growing confidence in upward price movement. Additionally, the shift towards backwardation in timespreads further underscores the market’s strength.
At an online ministerial review meeting on Wednesday, OPEC and its allies opted to maintain their current output cuts, signaling their commitment to curbing production until the end of June. With approximately 2 million barrels per day of curbs remaining in effect, the decision reflects the coalition’s efforts to stabilize oil prices amidst evolving market dynamics.
The upward trajectory of oil prices this year has been influenced by various geopolitical factors, including Ukrainian attacks on Russian energy infrastructure and ongoing tensions in the Middle East. Concurrently, OPEC+ supply cuts have served to tighten the market, while sporadic disruptions, such as the early-year deep freeze in the US and recent export curtailments by Mexico, have further supported prices.
Despite the bullish market conditions, the surge in oil prices has raised concerns among major consumers. A senior Indian oil official expressed anxiety regarding sustained price increases, emphasizing that companies may need to take action if higher prices persist. This sentiment underscores the delicate balance between market forces and consumer affordability in the context of escalating oil prices.
As oil prices surge to a five-month high, driven by declining inventories, reaffirmed supply cuts, and geopolitical tensions, the market remains poised for further volatility. While bullish sentiment prevails, concerns among major consumers highlight the importance of balancing supply dynamics with consumer affordability in navigating the evolving oil landscape.
