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Oil gains for second month in a row, up more than 8% in 2024

Crude futures gained for a second month in a row as the market anticipated oil alliance OPEC+ will extend its production cuts and the latest inflation data came in as expected on Thursday.

On Thursday, the Federal Reserve's favorite inflation gauge indicated gradual rate cuts this year are still on the table. Lower interest rates spur economic activity, which is bullish for oil demand.

West Texas Intermediate (CL=F) and Brent (BZ=F) ended the last day of February little changed at $78.26 and $83.62 per barrel, respectively. US crude futures are up roughly 3% for the month.

Since the start of 2024, WTI has gained about 9%, while Brent has rallied more than 8% following a volatile start to the year.

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While crude inventories rose for a fifth straight consecutive week, greater-than-expected demand out of Asia coupled with expectations that OPEC+ will extend its production cuts beyond March has helped maintain crude prices at elevated levels this month.

"OPEC+ will be very slow to unwind production cuts," Rebecca Babin, US senior energy trader at CIBC Private Wealth, recently told Yahoo Finance.

"I don't think OPEC+ will rush this decision unless the market is showing large inventory draws and Brent is closer to $90. This will keep the market tighter than most analysts have on paper at this point."

The Organization of Petroleum Exporting Countries and its allies have implemented production cuts totaling about 2 million barrels a day. A large portion of those are unilateral reductions from Saudi Arabia.

Crude demand for 2024 could also rise as China continues stimulating its economy to promote growth.

"Even though crude storage has risen, and near [non-OPEC] record crude production has been noted, so has a larger than expected global demand especially from Asia and mainly India," Dennis Kissler, senior vice president at BOK Financial, said in a note on Thursday.

Additionally, traders have been reacting to escalating tensions in the Middle East over the past two months.

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.

Analysts are watching for any impact broadening to the Strait of Hormuz, located between Oman and Iran. The waterway is considered one of the largest oil chokepoints in the world.

An Iranian police boat patrols near the island of Qeshm, which oversees strategic the waterway of the Strait of Hormuz, Iran, on Saturday, Dec. 24, 2011. (AP Photo/Vahid Salemi)
An Iranian police boat patrols near the island of Qeshm, which oversees the strategic waterway of the Strait of Hormuz, Iran, on Saturday, Dec. 24, 2011. (Vahid Salemi/AP Photo) (ASSOCIATED PRESS)

"While the ongoing Red Sea shipping disruptions amid the escalating war in the Middle East have had only a modest impact on energy prices, a potential closure of the Strait of Hormuz would have much more significant energy price effects that would likely lower global growth," wrote Goldman Sachs analysts this week.

The bank's analysts recently reiterated their call for a range of $70-90 per barrel for Brent this year, noting "geopolitics still pose upside price risk."

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