Oil Prices Near 3-Week High as Supply Worries Dominate Market Sentiment

The UAE Energy Minister Suhail Mohammed Faraj al-Mazroui (L) shakes hands with OPEC Secretary General Mohammed Barkindo (R) watched by Saudi Energy Minister Khalid al-Falih (C) during the Abu Dhabi International Petroleum Exhibition and Conference (ADIPEC) in the Emirati capital Abu Dhabi, on Nov. 12, 2018. KARIM SAHIB/AFP/Getty Images

Crude oil prices were trading close to a three-week high on April 18 amidst fears of supply disruption due to the ongoing Ukraine crisis.

Brent crude oil futures hit a high of $113.80 per barrel, a level unseen since March 30. U.S. West Texas Intermediate futures hit $105.55 per barrel, which was also the highest level since March 30.

Oil production has continued to fall in Russia this month. In the first half of April 2022, Russian oil output fell 7.5 percent compared to March. OPEC failed to raise its output by 253,000 barrels per day (bpd) in March as allowed in the OPEC+ deal. Instead, output for the month increased by 57,000 bpd.

OPEC+ is an alliance between OPEC and other oil-producing nations, including Russia.

“The oil market will likely stay on a bullish trend this week with limited additional supply coming from major oil producers to offset a reduced flow from Russia,” said Kazuhiko Saito, chief analyst at Fujitomi Securities Co Ltd., according to CNBC.

“Soaring U.S. heating oil prices were also behind the recent rally as expectations grew that U.S. petroleum market would get tighter due to increasing demand to export to Europe,” Saito said.

The International Energy Agency (IEA) recently warned in a report that Russian oil supply would fall by 1.5 million bpd in April and eventually by three million bpd in May. However, the agency is expecting to prevent a sharp deficit owing to output increases by other oil-producing nations.

The disruption in Libyan oil supply also added upward pressure on the market. The country’s National Oil Corp. warned on April 18 that it can no longer fulfill obligations for oil deliveries from its Sharara oil field and Zueitina terminal due to political disruptions. It had earlier halted production from the El Feel oil field.

The upside pressure on oil prices is being countered by worries about China’s growth. The country’s economy slowed down in March as exports, consumption, and real estate took a hit. The government’s highly restrictive COVID-19 restrictions have resulted in factory shutdowns and clogged ports, affecting supply chains.

“Severe new lockdown measures amid surging Covid cases in China have led to a downward revision in our expectations for global oil demand in 2Q22 and for the year as a whole. Weaker-than-expected demand in OECD countries at the start of the year added to the decline,” the IEA report said.

As a result, the agency reduced its estimate for global oil demand in 2022 by 260,000 bpd. Global demand is still expected to be up by 1.9 million bpd this year when compared to 2021.

Reuters contributed to this report.