Prediction u-turn bumps up oil price

Oil prices rose to a four-month high yesterday after the west’s energy watchdog forecast demand would exceed market supply, reversing its previous prediction of a surplus.

Brent crude, the international benchmark, breached US$85 for the first time since early November, rising 1.3 per cent to $85.15. That brings its rise so far this year to 11 per cent. The US benchmark, West Texas Intermediate, rose 1.7 per cent to US$81.04 a barrel.

The International Energy Agency said the oil market would be in a “slight deficit” this year, as it reduced its forecast for global supply growth to 800,000 barrels a day, from

1.7 million in its February report. The new estimate assumes that voluntary cuts made by Opec+ members to try to support prices will remain in place throughout 2024.

The watchdog, largely funded by the OECD, also upgraded its forecast for consumption growth to 1.3m barrels a day.

The revisions marked a reversal for an agency that, as recently as January, was forecasting a “substantial surplus” in supply.

The moves extend gains of more than

2.5 per cent from the previous trading session, which came after Ukrainian drone strikes on oil refineries inside Russia and a report showed a decline in US stockpiles.

Hedge funds have also been steadily increasing their net bets on rising prices since December, giving further support to the market, according to US Commodity Futures Trading Commission data.

The latest gains push oil prices further above levels at which government budgets in Saudi Arabia and Russia are seen as likely to come under strain. But higher prices could pose a problem for US President Joe Biden ahead of a tough re-election fight against Donald Trump.

Oil prices have traded in a tight range of just a few dollars over the past month, but began to edge higher earlier in March after Opec

+ members said they would extend by another three months voluntary production cuts due to expire at the end of this month.

Recent price gains could be seen as a vindication for Saudi Arabia, which has sacrificed market share in order to keep prices at levels that will enable it to fund a series of ambitious spending projects to diversify its economy.

Price moves had remained subdued, despite geopolitical tensions sparked by Israel’s war with Hamas and attacks on shipping in the Red Sea by Yemen-based Houthi rebels, as traders bet record production growth by Opec’s competitors would keep the market amply supplied.