Posted by New Delhi: Brent crude prices were up 0.04 per cent to $90.14 per barrel on April 16, 2024, compared to a slip to $89.64 per barrel on Monday from $92.18 per barrel on Friday. The price rise on Tuesday was likely driven by China reporting better than expected Q1 GDP at 5.3 per cent, compared to a Reuters poll which forecast 4.6 per cent Q! GDP growth for the world’s second-largest economy.
This led to an uptick in oil prices in expectations of greater consumption for the commodity in the world’s 2nd largest economy. China is currently the world’s largest oil importer.
Why did crude oil prices decline on Monday?
Benchmark Brent Crude oil prices declined on Monday owing to a combination of factors. Mohamed El-Erian, an economist and the President of Queen’s College, University of Cambridge, said the fall in prices on Monday accounted for what did not happen — heavy damage and casualties from the Iran-Israel engagement — and a market view that escalation of the conflict is unlikely.
Prior to the conflict, the International Energy Agency gave a bearish outlook on oil demand by slashing its forecast to 1.2 million barrels per day (bpd) in 2024 from 1.5 million bpd earlier. The OPEC+ forecast a 2.25 million bpd rise in demand during the same period.
Another indicator of a potential decline in demand was the reported decline in oil rig count in the US as well as a rise in the country’s oil inventories. Both these factors cooled crude oil prices despite rising geopolitical tensions between Israel and Iran last week.
Crude oil prices are unlikely to hit levels seen after the Russia-Ukraine War, CNBCTV18 reported citing a government official. Oil marketing companies also stated that a spike in prices to $100 per barrel levels is unlikely as indicated by oil futures behaviour.
However, a lingering uncertainty will remain attached to the possibility of Israel launching a direct attack on Iran, said ING Group senior commodities strategist Warren Patterson.
How can OPEC+ offset price rise?
Open has the ability to offset any price rise by ramping up output to an additional 6 million barrels per day capacity, according to Goldman Sachs. However, the escalation of hostilities between Iran and Israel is likely to hurt OPEC+ output since Iran is a founding member of OPEC and a significant contributor despite US sanctions on buying Iranian crude.