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Oil prices are rising despite a rough start to 2024 — here's why

Oil's bumpy start in 2024 has turned into a steady climb in recent weeks, with futures for West Texas Intermediate (CL=F) and Brent (BZ=F) up more than 9% and 7% year to date, respectively.

On Friday, WTI traded above $78 per barrel while Brent hovered above $83 per barrel, both on pace for their fourth weekly gain out of the past five.

Escalating tensions in the Middle East, easing concerns of too much US production, and ongoing cuts from the oil producers alliance, OPEC+, have kept prices on an upward trajectory.

"I think most analysts are pretty confident that the market is well supported and crude fundamentally kind of around that $70 a barrel in WTI," Rebecca Babin, US senior energy trader at CIBC Private Wealth, recently told Yahoo Finance.

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The gains over recent weeks may not be over, says Babin.

"I actually don't think they've peaked," she said, adding that "everyone seems to be very focused on these downside risks —US supply growth, China demand — and really kind of taking their eye off the ball ... there are a couple of things that could go right for crude this year. We could actually see demand outperform."

The US Energy Information Administration recently reduced its US output forecast well below the record levels of December 2023.

"We forecast production will return to almost 13.3 million barrels per day in February but then decrease slightly through the middle of 2024 and will not exceed the December 2023 record until February 2025," wrote the Energy Information Administration.

The updated prediction helped lift crude prices earlier in the week amid easing concerns of oversupply coming from the US.

An aerial view of a crude oil storage facility is seen on May 5, 2020 in Cushing, Oklahoma. - Using his fleet of drones, Dale Parrish tracks one of the most sensitive data points in the oil world: the amount of crude stored in giant steel tanks in Cushing, Oklahoma. The West Texas Intermediate oil stored in the small town in the midwestern United States is used as a reference price for crude bought and sold by refiners in Asia, hedge funds in London and traders in New York. (Photo by Johannes EISELE / AFP) (Photo by JOHANNES EISELE/AFP via Getty Images)
An aerial view of a crude oil storage facility is seen on May 5, 2020, in Cushing, Okla. (JOHANNES EISELE/AFP via Getty Images) (JOHANNES EISELE via Getty Images)

Meanwhile, the White House's continued efforts to refill the Strategic Petroleum Reserve are also seen as bullish for oil prices.

"There seems to be a commitment to continue to be active. And we have a very disciplined OPEC, which I think will absolutely extend their cuts through the first half of '24 and maybe even throughout the whole year, if they need to," said Babin.

The Organization of the Petroleum Exporting Countries and its allies (OPEC+) implemented a series of output cuts more than a year ago in order to support prices. (Growing output from non-OPEC members has offset some of those reductions.)

Additionally, traders have been reacting to escalating tensions in the Middle East over the past several weeks. Iran-backed Houthis supporting Palestinians in the Israel-Hamas war have been targeting vessels along the Red Sea, prompting major tankers to avoid the area that connects to the Suez Canal, a critical pathway between Asia and Europe.

"The rerouting of trade away from the Red Sea continues to lengthen the petroleum (and global trade) supply chain, pushing up shipping costs and tying up more crude oil and refined products in transit. These dynamics widened regional fuel spreads and added a layer of 'demand' for oil," wrote BofA analysts in a note this week.

Traders are also focused on the latest draws in both distillates, which includes diesel fuels, and gasoline inventories. Lower inventories are often supportive of higher crude prices.

"A pickup in seasonal fuel demand normally occurs in early March and with inventories still on the low side of normal, crude should see underlying strength on major setbacks," Dennis Kissler, senior vice president at BOK Financial, said in a recent note to clients.

Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre.

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