Oil prices touch lowest levels since mid-March as Russia signals OPEC+ output rise possible

Oil prices touch lowest levels since mid-March as Russia signals OPEC+ output rise possible

Oil futures finished modestly lower on Tuesday, briefly touching their lowest prices since mid-March, after news reports said Russian Deputy Prime Minister Alexander Novak indicated OPEC+ could move to raise crude production.

Prices had seen only temporary support in early dealings as investors monitored developments in the Israel-Hamas war, with Israeli forces seizing control of the Gaza side of the Rafah border crossing with Egypt.

Price moves

• West Texas Intermediate crude for June delivery fell 10 cents, or 0.1%, to settle at $78.38 a barrel on the New York Mercantile Exchange after touching a low of $77.55.
• July Brent crude the global benchmark, lost 17 cents, or 0.2%, at $83.16 a barrel on ICE Futures Europe, trading as low as $82.41. Brent and WTI tapped their lowest intraday levels since March 13, FactSet data show.
• June gasoline lost 1.7% to $2.54 a gallon, while June heating oil added 0.2% to $2.47 a gallon.
• Natural gas for June delivery settled at $2.21 per million British thermal units, up nearly 0.6%.

Market drivers

“Oil is lower because a renewed battle between Israel and Hamas, in isolation, does not really affect oil-producing nations,” Stewart Glickman, energy equity analyst at CFRA Research, told MarketWatch.

If Iran is “subsequently encouraged to do more direct attacks on Israel, it may be different,” he said, but the market is “discounting this possibility.”

Novak told Russia’s Interfax news agency that the possibility of increasing oil production within the OPEC+ framework was still being analyzed.

“It always depends on the current situation; the balance of supply and demand. Everything is analyzed. Now there is no need to forecast anything. We need to look at how the market is feeling,” he said, according to Interfax.

OPEC+ — made up of the Organization of the Petroleum Exporting Countries and its Russia-led allies — has largely been expected to roll over existing voluntary cuts of 2.2 million barrels a day beyond the second quarter. The group is expected to decide on production levels at a meeting on June 1.

Ultimately, it is up to Saudi Arabia and the other seven OPEC+ countries to decide whether they want to maintain the voluntary production cuts in the second half of the year, Carsten Fritsch, commodity analyst at Commerzbank, said in a note. One obstacle could be the insufficient implementation of the agreed cuts by some countries to date. These include Iraq and Kazakhstan, which significantly exceeded their production targets in the first quarter, he said, noting both countries presented plans last week on how they intend to compensate for overproduction by the end of the year.

OPEC+ is likely to restrain production at its next meeting, said Jay Hatfield, chief executive officer at Infrastructure Capital Advisors.

He also expects WTI oil prices to bottom in the $75 area and potentially rally above $85 as the market moves into the peak summer travel season.

Meanwhile, Israel’s seizure of the Gaza side of the Rafah border crossing came after hours of whiplash in the Israel-Hamas war, with the militant group on Monday saying it accepted an Egyptian-Qatari mediated cease-fire proposal. Israel, meanwhile, insisted the deal did not meet its core demands.

Read: How an Israeli invasion of Rafah could rattle the oil market

“We do not expect the Middle East conflict to inflate prices unless Iran enters the war directly,” Hatfield told MarketWatch.

In a monthly report released Tuesday, the Energy Information Administration lowered its WTI and Brent oil-price forecasts for this year and next. The report also that despite Middle East tensions, price volatility has been “subdued” for much of this year by “significant” spare crude production capacity.

The EIA forecast OPEC spare output capacity at 4.09 million barrels a day in 2025, down from an estimated 4.15 million bpd this year, but up from 3.68 million bpd in 2023.

The EIA will release its weekly petroleum supply data Wednesday. On average analysts polled by S&P Global Commodity Insights forecast an increase of 300,000 barrels in U.S. commercial crude inventories for the week ended May 3, along with supply declines of 800,000 barrels for gasoline and 1.1 million barrels for distillates.

—Associated Press contributed.