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Over the past month, crude oil prices experienced a strong surge, with brent crude futures reaching $87.70 per barrel for the first time since October 2023. The remarkable rally which started in December 2023 has been influenced by a number of factors, ranging from geopolitical tensions, the extension of OPEC+ output cuts, the tightening of physical market, and increased demand from the largest oil consuming countries.
Geopolitical tensions and supply constraints
The recent escalation of geo-political tensions, particularly the Ukrainian drone attacks on Russian oil infrastructure, the continued unrest in the Middle East, and extended OPEC+ supply cuts have fuelled apprehensions over potential disruptions to global oil supplies and have been supporting crude prices. While these tensions have not yet led to significant supply disruptions, they have contributed to market uncertainty. Despite headwind winds such as a robust U.S. production and a challenging economic outlook for the biggest oil consumer – China, crude prices have been gradually rising in the first quarter of 2024.
OPEC+ production cuts and tightening of physical markets
The decision by OPEC+ members to extend production cuts until June 2024, with indications of further extensions, has played a pivotal role in tightening physical markets and supporting oil prices. The move signals a commitment to balancing supply and demand, contributing to sustained tightness in physical markets throughout the second quarter of 2024.
Improving economic outlook and rising demand
The upwardly revised outlooks for the global economy, coupled with improving demand projections, have increased optimism among crude traders. Increased mobility in major oil-consuming regions, such as China and Europe, alongside robust household consumption in India, has driven up oil demand. Despite concerns over economic growth in some regions, overall demand remains resilient, contributing to a net supply deficit in physical markets.
Projection for crude oil demand and prices
The International Energy Agency (IEA) projects a modest uptick in crude oil demand by 1.1 mbpd in 2024, compared to a 1.9 mbpd growth in 2023. The growth is primarily driven by emerging markets like India and China. The outlook for crude prices remains broadly balanced in 2024, with the possibility of brent crude futures rising to $90.00 per barrel in the short term. Escalating geopolitical tensions and the ongoing OPEC+ output cuts are likely to continue to exert upward pressure on prices.
Source: TradingView
Technical analysis
Oil has been trading sideways from the onset of 2024, with the price of brent fluctuating within the boundaries of a bullish ascending triangle. Last week’s price action decisively broke above its key resistance of $84.80 per barrel, showing that a new uptrend has started and suggesting that higher price levels are likely to unfold in the short-term. The potential upside price target based on the breakout is in the range between $90.00 and $95.00 per barrel.
Conclusion
The surge in crude oil prices over the past three months reflects a complex interplay of geopolitical, supply-demand, and economic factors. Geo-political uncertainty and extended supply cuts by OPEC+ have buoyed prices, despite the challenging economic outlook in China and the robust non-OPEC supply growth.
Professional investors looking to invest in crude oil may consider Leverage Shares Brent Oil ETC or Leverage Shares WTI Oil ETC . For magnified exposure, investors may consider Leverage Shares +2x Long WTI Oil or Leverage Shares -2x Short WTI Oil ETPs.
Footnotes:Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at
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