By Scott DiSavino
NEW YORK (Reuters) -Crude prices edged up about 1% to a five-month high on Monday on expectations oil demand will climb following the release of positive economic news from the U.S. and China, while OPEC+ cuts and attacks on Russian refineries tighten global supplies.
Brent futures were up 54 cents, or 0.6%, to $87.54 a barrel by 1:47 p.m. EDT (1747 GMT), while U.S. West Texas Intermediate (WTI) crude rose 71 cents, or 0.9%, to $83.88.
That puts both crude benchmarks on track for their highest closes since Oct. 27.
The increase in WTI futures cut the U.S. diesel crack spread, which measures refining profit margins, to its lowest since May 2023 for a second day in a row.
In the U.S., manufacturing grew for the first time in 1-1/2 years in March as production rebounded sharply and new orders increased, but employment at factories remained subdued amid “sizable layoff activity” and prices for inputs pushed higher.
U.S. Commerce Department data last week showed the personal consumption expenditures (PCE) price index – the Federal Reserve’s preferred inflation gauge – largely moderated in February, with the cost of services outside housing and energy slowing significantly.
While some analysts said the increase in prices for manufacturing inputs could give the U.S. central bank some pause on when to cut interest rates, most analysts said the moderation in the PCE price index should keep a June rate cut on the table.
Lower interest rates reduce the cost of buying goods and services, which could boost economic growth and increase oil demand.
In China, manufacturing activity expanded for the first time in six months in March, according to an official factory survey, supporting oil demand in the world’s largest crude importer.
“Chinese oil demand is arguably the one missing factor outside of geopolitical headlines capable of taking oil prices to the next level,” Bob Yawger, director of energy futures at Mizuho, said in a note.
“Strong summer gasoline demand and a rebound in China oil demand could be the one-two punch that support $100 a barrel,” Yawger added.
In Japan, optimism in the services sector climbed to a 33-year high in the first quarter on booming tourism and rising profits from price hikes, a central bank survey showed.
In Europe, oil demand was firmer than expected, rising 100,000 barrels per day (bpd) on the year in February, Goldman Sachs analysts said, versus a forecast for a 200,000-bpd contraction in 2024.
On the supply side, top oil exporter Saudi Arabia may raise the official selling price (OSP) for flagship Arab Light crude in May after Middle East benchmarks strengthened last month, according to industry sources.
Russian Deputy Prime Minister Alexander Novak said the country’s oil companies will focus on reducing output rather than exports in the second quarter in order to evenly spread production cuts with other members of OPEC+, which brings together the Organization of the Petroleum Exporting Countries and allied producers.
Drone attacks from Ukraine have knocked out several Russian refineries, which is expected to reduce Russia’s fuel exports.
Almost 1 million bpd of Russian crude processing capacity is offline from the attacks, affecting its high-sulphur fuel oil exports that are processed at Chinese and Indian refineries.
(Reporting by Scott DiSavino, Noah Browning, Florence Tan and Sudarshan Varadhan; Editing by Christian Schmollinger, Kirsten Donovan, Alexandra Hudson, Barbara Lewis and Paul Simao)
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