May 2024 - Portland Pricing

Monthly Pricing - 01/05/2024

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Brent crude futures began April at $88.9/bbl, sitting almost 5% above the average for March. News that an Israeli airstrike in on the Iranian embassy in Damascus had killed several Iranian military officials sparked tensions which have placed a risk premium on oil prices throughout the month. The International Energy Administration cited ‘ongoing geopolitical risks’ as a major factor in its April fuel outlook. These geopolitical risks pushed prices up in a tighter supply environment caused by OPEC+ who, led by Saudi Arabia, extended voluntary oil output cuts of 2.2 million barrels per day into Q2 in their March meeting and this remained unchanged in April. The price reached a peak of $91.2/bbl on April 5^th, as markets prepared for Iran to strike Israel. After the attack on April 14^th, the Brent price failed to break higher, as 99% the 300 drones and missiles launched were successfully defended. This demonstrates the weak demand outlook which has caused the oil price to trend downwards since the highs early in the month- reaching a low of $87.0 on the 22^nd. US crude oil stocks showed a net build of 5.4 million barrels in the month, including up to data released on April 24^th. Furthermore, weak US economic data released late in the month showed the economy only grew at 1.6% in Q1, coming in lower than expected. The International Energy Agency (IEA) reported that China’s oil use grew by an estimated 1.6 mb/d year-on-year, in Q1, down from 1.9 mb/d in Q4 2023. This weak demand outlook has caused sustained downward pressure on prices throughout the month, and when Iran downplayed the Israeli retaliation towards the end of April, the risk concerns in the region gave way to demand concerns. This caused Brent crude to close at $86.2/bbl in the last week of April, down 3% from the start of the month.

GBP began April trading at $1.257 against USD, before rising modestly to a high $1.268 early in the month. However, the US Consumer Price Index data released in early April showed a hotter-than-expected inflationary picture. This caused traders to adjust bets on Federal Reserve interest rate cuts in 2024, resulting in the strongest week for the dollar since 2022, according to the Financial Times. Three 0.25% cuts were priced in to currency markets, however a tighter policy is now forecast. Furthermore, geopolitical tensions in the Middle East have boosted USD. As fears that a broader conflict in the region could spread, the dollar has seen support as the global safe-haven fiat currency. On the other hand, the UK saw stronger data towards the end of the month, with British business activity seeing the largest increase since May 2023 in March. This positive outlook has softened the stance of the Bank of England (BoE), with Chief Economist Huw Pill stating that the upturn had brought the prospect of rate cuts in the UK closer. Markets now expect a reduction in August. The general strength of the dollar and anticipated rate cuts in the UK pushed the pound to a low of $1.233 towards the end of the month, with GBP rebounding slightly to finish April trading close to $1.251 against USD.

In April, tensions in the Middle East were the preeminent price driver on the supply side, despite production in the region remaining generally undisturbed. After the Israel missile strike on the Iranian embassy in Syria, Iran promised a harsh response, calling the attack ‘unprecedented’. The Revolutionary Guard said that it would disrupt trade in the Strait of Hormuz if necessary, which would put even further strain on supply lines in the region as attacks in the Red Sea are still ongoing. Also, hopes for a ceasefire in Gaza were all but quashed in April for the foreseeable future. An Israeli airstrike killed three sons of Ismail Haniyeh, a Hamas political leader. In the wake of talks breaking down, Prime Minister Netanyahu reaffirmed the state’s intentions to launch a ground assault in Rafah, preparations for which have already begun. The US and UN, among others, have warned against a military operation in Rafah where over a million people, mostly displaced by the war, are packed into an area of only 25 square miles. Towards the end of the month, Israel launched a missile which struck Iranian soil, and markets braced for the response which had the potential to spread the conflict throughout the region. However, Iranian Foreign Minister Hossein Amirabdollahian told NBC that they will not retaliate against the Israeli missile attack, allaying fears that the conflict will spread. At the end of the month, the US reimposed sanctions against the Venezuelan oil industry after temporary relief measures passed in 2023 were not renewed over concerns around the democratic process in the country. Furthermore, a landmark $61 billion dollar Ukraine aid bill was passed by US lawmakers which contained sanctions against Iranian economic activity, potentially impacting their state-owned oil companies, however Washington politicians will be hesitant to put upward pressure on oil prices in an election year.

Price Drivers

Supply

Russian gasoline output recovered to volumes seen at the beginning of March, before Ukrainian airstrikes impacted productions, however diesel still remains 5% below typical levels at this point in the year.

After OPEC+ left supply cuts unchanged in their April meeting, Iraq and Kazakhstan both pledged full conformity as well as compensation after they failed to meet quotas in March, presenting the group as on a united footing.

Demand

The IEA reduced its global demand forecast to 1.2 million barrels per day (mbpd), however OPEC+ has maintained its 2.2mbpd prediction.

Federal Reserve chief Jerome Powell indicated that higher rates will be left in place for longer in the US, after PMI data released in April was weaker than anticipated, painting a weaker demand picture.

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Iran launched an attack on Israel on April 13^th consisting of around 300 drones and missiles, 90% of which were intercepted. In retaliation, Israel hit Iran with a missile the following weak, however Iranian officials downplayed the return attack.

The US reimposed sanctions on Venezuela’s oil industry after existing measures expired, with the US State Department stating that conditions requiring President Maduro to hold free and fair elections this year have not been met.