Oil prices surged more than 1% on Friday amid growing signs of a tightening market ahead of an imminent decision by the Organization of Petroleum Exporting Countries and allies (OPEC+) on production cuts. The rise in crude oil futures was driven by anticipation surrounding OPEC's decision, with both West Texas Intermediate (WTI) and Brent crude seeing gains.
The WTI contract for April increased by $1.51, or 1.93%, reaching $79.77 a barrel, while May Brent futures added $1.40, or 1.71%, climbing to $83.31 a barrel. This upward movement marked the second consecutive monthly gain for both U.S. crude and the global benchmark, with front month contracts trading at a premium to later months -- a typical indication of a tightening oil market.
OPEC+ is deliberating the possibility of extending production cuts through the second quarter and possibly beyond, according to a report by Reuters. A decision is expected in the first week of March, with OPEC and its allies considering various factors before reaching a consensus.
Technical analyst Paul Ciana from Bank of America projects a potential breakout for Brent crude futures, estimating they could reach the $95 per barrel range in the second quarter. Ciana emphasized bullish sentiment in the market, particularly with aggressive buying at higher lows. However, he highlighted the importance of Brent holding support levels at $79.50 to $80 a barrel in March to sustain this upward momentum.
Geopolitical tensions in the Middle East also played parts in the market dynamics, with cease-fire negotiations between Israel and Hamas at risk following a deadly incident in Gaza City. Israeli Prime Minister Benjamin Netanyahu's rejection of international pressure to end the conflict further raised concerns, potentially impacting oil prices in the region.
In addition to OPEC's decision, other economic indicators have impacted oil prices. The U.S. personal consumption expenditures (PCE) index unveiled that January's inflation was in line with expectations, keeping the possibility of an interest rate cut on the table. This could stimulate consumer spending on fuel, bolstering oil prices in the process.
However, mixed purchasing managers' index (PMI) data from China, the world's largest oil consumer, tempered gains in oil prices. While China's manufacturing activity continued to contract, the non-manufacturing PMI displayed signs of improvement. Analysts foresee sluggish demand in the second quarter of 2024 but anticipate a rebound in the latter half of the year, driven by potential monetary policy shifts and economic recovery.
