Oil futures are approaching a five-month high following Ukrainian drone attacks on Russian energy infrastructure, propelling crude prices to their highest levels since October. The ICE Brent front-month crude futures contract closed up 1.8% at $86.89 per barrel, reaching $87 in after-hours trading, the highest price since October 30. Meanwhile, the NYMEX West Texas Intermediate settled at $82.72 per barrel, up 2.1%, the highest since November 2.
Recent attacks on Russian refineries, including the Slavyansk refinery in Krasnodar, have caused disruptions, with approximately 7% of Russia's refinery capacity currently offline. The strategic targeting of Russian oil by Ukraine has heightened risk premiums amidst existing geopolitical tensions.
However, the surge in oil prices is not solely due to supply concerns but also hints at potential demand upticks. Positive economic indicators from China, the world's largest crude oil importer, show a 7% rise in industrial output for January and February, the best reading in nearly two years. Retail sales in China also increased by 5.5%, indicating a positive economic outlook.
Moreover, the U.S. and India are displaying strong crude demand, with expectations of a robust oil market in 2024. OPEC and the International Energy Agency have maintained optimistic global oil demand growth forecasts, further boosting market sentiment.
The recent decline in U.S. oil inventories, coupled with production cuts by OPEC and Saudi Arabia, is contributing to the bullish trend in oil futures. U.S. crude production has decreased to 13.1 million bpd, aligning with efforts to prioritize higher prices over volume.
