Oil prices surged approximately 2% to reach a one-week peak on Monday, driven by optimism surrounding increased fuel demand anticipated during the summer months, despite the strengthening of the U.S. dollar and expectations that the Federal Reserve (Fed) will maintain higher interest rates for an extended period.
Brent futures climbed $1.36, marking a 1.7% increase to reach $80.98 per barrel by 11:24 a.m. EDT (1524 GMT), while U.S. West Texas Intermediate (WTI) crude surged $1.46, reflecting a 1.9% rise to hit $76.99.
Also read: Gold prices dip on strong US dollar as China pauses buying yellow metal
According to a report by Goldman Sachs, as quoted by Reuters, Brent is projected to increase to $86 per barrel in the third quarter. They attribute this rise to robust summer transport demand, which is anticipated to drive the oil market into a deficit of 1.3 million barrels per day (bpd) during that period.
“Oil price dynamics are also giving oil producers little encouragement. Over the past ten weeks, the price has fallen more than 12%, reaching 17% early last week. The price of a barrel of WTI is testing the 200-week moving average – clearly separating bull and bear markets for the past five years. However, this largely applies to previous years as well.
Last week, the bulls managed to stop the sharp increase in the sell-off, but perhaps only this week’s results will tell us whether oil has managed to push off the bottom or whether the market is on the verge of a similar regime switch as in Q1 2020 or Q3 2014,” said Alex Kuptsikevich, the FxPro senior market analyst.
What’s weighing on crude oil prices?
- The U.S. dollar surged to a one-month peak against a range of currencies, propelled by the euro’s sharp decline amid political instability in Europe. This turbulence followed significant gains by far-right parties in the European Parliament elections, prompting French President Emmanuel Macron, facing political challenges, to announce a snap national election.
- Investor focus now shifts to the crucial U.S. Consumer Price Index inflation figures for May, due on Wednesday, offering insights into the potential timing of interest rate adjustments by the Fed.
- Additionally, market anticipation surrounds the conclusion of the Fed’s two-day policy meeting on Wednesday, where the central bank is widely anticipated to maintain interest rates at their current levels.
- Following Friday’s data release, market sentiment moderated regarding the likelihood of Fed rate cuts in September, with current pricing indicating a probability of less than 50% for a reduction. This contrasts with expectations that had peaked at 69% just last week.
- Traders have also revised down their expectations for the extent of monetary easing this year, now suggesting only one cut compared to the previous anticipation of two, according to data from financial firm LSEG.
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Published: 10 Jun 2024, 10:37 PM IST
