Brent crude crosses $88 per barrel to reach 5-month high; what drove the rally?

Global crude oil benchmark Brent on Tuesday, April 2, crossed $88 per barrel to reach its highest mark in the past five months. The surge comes in the backdrop of the ongoing Russia-Ukraine conflict and the escalating tensions in the Middle East that have stoked fears related to oil supply.

The Brent futures for June delivery surged by 1.5% or $1.29 to reach $88.71 per barrel at 09:12 GMT. The rate is the highest since October 27, 2023. The U.S. West Texas Intermediate (WTI) crude futures for May also jumped by 1.6% or $1.30 to reach $85.09.

The surge comes a day ahead of the scheduled meeting of the Organization of the Petroleum Exporting Countries (OPEC) to review the group’s decision to implement voluntary oil cuts. The OPEC members are likely to decide in favour of continuing the voluntary output cuts of 2.2 million barrels per day (bpd) till June-end, news agency Reuters reported.

What drove the current rally in crude oil prices?

The global oil rates, say analysts, have climbed on fears of a possible impact on oil supply due to the suspected Ukrainian attacks on Russian energy facilities. According to reports, drones originating from Ukraine struck the Taneco refinery on April 2. The refinery is Russia’s third largest, and has an annual production capacity of 340,000 bpd. The extent to which it was damaged was not ascertained by the time the preliminary reports emerged.

The worries related to a potential disruption in supplies amplified after Iranian President Ebrahim Raisi warned of retaliation, following a suspected Israeli strike on the country’s consulate in Syrian capital Damascus.

Oil broker PVM’s Tamas Varga told Reuters that any Iranian response against Israel can turn the Gaza war into a “region-wide conflict, with plausible impact on oil supply”.

Meanwhile, Brent prices had also climbed by 1% on April 1, in the backdrop of upbeat economic data emerging from the United States and China.

In China, which is the world’s second largest oil consumer, the manufacturing activity, measured as purchasing managers' index (PMI), climbed to 50.8 in March from 49.1 in February. This was the first expansion in the past six months. In the US, which is the world’s top oil consumer, the PMI increased to 50.3 in March from 47.8 in February, marking the first expansion in the last one-and-a-half years.