Brent crude futures were up 6 cents to $86.37 a barrel at 0650 GMT, while West Texas Intermediate crude (WTI) was up 3 cents at $82.55 a barrel.
Both contracts posted their fourth weekly gains last week after the International Energy Agency (IEA) forecasted record demand of 101.9 million barrels per day in 2023, up 2 million barrels a day from last year. This is the longest winning streak since mid-2022.
But the IEA warned in its monthly report that output cuts announced by OPEC+ producers risk exacerbating the oil supply gap expected in the second half of the year and could hurt consumers and the global economic recovery.
Rising costs of Middle Eastern crude supplies, which meet more than half of Asia’s demand, are already shrinking refiners’ margins and pushing them to procure from other regions.
Refineries are also ramping up gasoline production ahead of summer demand peaking while slashing diesel output amid worsening margins.
Fixed price and time spread strengthen as a result of tighter market expectations, while demand concerns persist. Weaker refinery margins remain a feature where weakness is predominantly driven by middle distillates. Stronger crude oil prices will also not help margins for refiners.
Meanwhile, oil exports from northern Iraq to the Turkish port of Ceyhan have almost stalled for nearly three weeks after an arbitration case ruled that Ankara owed compensation to Baghdad for unauthorized exports.
Investors will be watching China’s first-quarter gross domestic product (GDP) data this week, which is expected to be positive for commodity prices. Earnings from US companies will also provide clues about Federal Reserve policy and the course of the dollar.
The dollar strengthens with increases in interest rates, making dollar-denominated oil more expensive for holders of other currencies.
Traders are speculating that the Fed will raise its lending rate by another quarter point in May and, as with a typical slowdown, will push back on rate cut expectations this year.
The market is pricing in the probability of a 25 basis point rate hike in May at 78% and a reduction of less than 60 basis points by the end of the year. This means that some of the headwinds supporting crude oil demand from the Fed’s rate cut expectations are starting to fade.
