Oil prices end higher as traders assess supply-and-demand outlook

Price moves

• West Texas Intermediate crude
  CL00,
  +0.01%
  for April delivery
  CL.1,
  +0.01%

  CLJ24,
  +0.01%
  rose $1.09, or 1.4%, to settle at $77.58 a barrel on the New York Mercantile Exchange, following a weekly loss of 2.5%.

• April Brent crude
  BRNJ24,
  the global benchmark, added 91 cents, or 1.1%, at $82.53 a barrel on ICE Futures Europe. May Brent
  BRN00,
  +0.14%

  BRNK24,
  +0.14%,
  which is more actively traded, climbed 87 cents, or 1.1%, to $81.67 a barrel.

• March gasoline
  RBH24
  tacked on 1.3% to $2.31 a gallon, while March heating oil
  HOH24
  climbed 2.7% to $2.76 a gallon.

• Natural gas for March delivery
  NGH24
  settled at $1.66 per million British thermal units, up 3.5%. The March contract expires at the end of Tuesday’s trading session.

Market drivers

“The global oil market is experiencing higher uncertainty regarding the balance between supply and demand,” said Stephen Innes, managing partner at SPI Asset Management. “This uncertainty has contributed to global benchmark trading within a relatively tight range.”

Global oil-demand growth is expected to be lackluster this year, partly due to “sluggish” economic conditions and increasing electric-vehicle sales in China, he said in emailed commentary. Global oil supply, meanwhile, is ”poised to decelerate this year,” with the International Energy Agency forecasting more modest supply growth this year than last.

Given all of that, the oil market appears “poised to maintain relative equilibrium throughout the year,” said Innes.

However, SPI Asset Management sees oil prices leaning more toward the downside. Global growth, and consequently global oil demand, is more likely to “underperform expectations due to the challenges currently confronting the Chinese economy and the need for the Fed to persist in mitigating inflationary pressures,” he said.

There’s also a “heightened possibility” that global oil supply may exceed projections if U.S. shale producers continue to enhance drilling efficiency, said Innes. Also, tensions among OPEC+ members could resurface, “potentially leading to increased supply despite Riyadh’s efforts to bolster prices.”

Last week, crude prices fell, with WTI ending Friday at its lowest level since Feb. 8 and Brent posting its lowest settlement since Feb. 14, based on front-month contracts.

“With inflation stubbornly hovering well above the Fed’s 2% target and the U.S. economy showing a resilience few had predicted, the markets moved to price in a scenario where interest rates remain high for longer,” Ricardo Evangelista, senior analyst at ActivTrades, said in emailed comments.

“Against this background, economic activity is expected to be impacted, leading to lower forecasts for future oil demand,” he said.

The Federal Reserve’s favored inflation gauge, the core personal-consumption expenditures index, is due out Thursday.

Investors came into 2024 pricing in six to seven quarter-percentage-point rate cuts over the course of the year, beginning in March. As the data came in and the Fed pushed back on those expectations, markets now see a better than 50% chance that cuts will begin in June and that the Fed will deliver only three or four cuts by the year’s end, according to the CME FedWatch Tool.

See: Should stock-market investors care more about Nvidia than the Fed? Inflation data will provide a test.

The U.S. and U.K. conducted more strikes against Houthi targets inside Yemen on Saturday, the Wall Street Journal reported, extending a fight against the Iran-backed group that has targeted shipping in the Red Sea with drone and missile attacks.

While concerns remain over the potential for an escalation of the Israel-Hamas war, so far crude supplies have been largely unaffected.

Also see: Trump might deliver lower oil prices but ‘mixed’ performances for oil and gas stocks

A gain in prices for natural gas on Monday, meanwhile, was “merely a flash in the pan for a product that has been on an impressive bear run” since the start of the year, StoneX’s Kansas City energy team, led by Alex Hodes, said in a Monday note.

Natural-gas futures have lost 34% year to date, according to Dow Jones Market Data.