Crude oil prices have resumed their upward trend in recent sessions to hit multi-week highs, led by rising tensions in the Middle East and expectations of OPEC+ countries extending voluntary output cuts of about 2.2 million barrels per day, which were first implemented in 2023 to bolster global crude oil prices.
Additionally, the onset of the peak demand season in the U.S., the world’s largest oil consumer, coupled with the continuation of production cuts is backing the crude prices. Estimates suggest that U.S. summer demand could reach its highest levels in decades.
Further, tensions escalated in the Middle East following a missile attack on a ship off Yemen’s coast on Tuesday. While no group claimed responsibility, suspicion fell on Yemen’s Houthi rebels, who have previously targeted ships amid the ongoing conflict between Israel and Hamas in Gaza.
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According to recent reports, Yemen’s Houthi rebels have launched over 50 attacks in the Red Sea region since November. In addition, increased fighting in the Gaza Strip, including Israeli tank advancements into the Rafah area, has further supported crude prices.
Following these developments, both Brent and WTI crude futures have ended the last three trading sessions in positive territory, posting gains of nearly 4%. Brent crude prices have risen to $83.71 per barrel from $81.36, while WTI prices have climbed to $79.30 from $76.87 per barrel.
Both continued their winning streak in today’s session, with Brent reaching a four-week high of $84.95 per barrel and WTI futures touching a four-week high of $80.56 per barrel.
From OPEC+ meeting to US inflation data: Key events likely to shape oil prices this week
OPEC+ will hold a virtual meeting on Sunday to reassess its production strategy. Several OPEC+ members are voluntarily withholding 2.2 million barrels per day from the market to stabilise prices.
The International Monetary Fund predicts that Saudi Arabia, the leader of the OPEC group’s production cuts, will require a higher oil price this year. Riyadh needs an average oil price of $96.20 a barrel to balance its budget, assuming it maintains crude output near 9.3 million barrels a day in 2024, the IMF said in April.
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The Saudis have taken the lead in reducing output within the OPEC alliance to prevent a global oil surplus and boost prices, intensifying cutbacks by 1 million barrels a day since July last year.
Investors will be closely monitoring the US weekly barrel inventory counts released by both the American Petroleum Institute (API) and the Energy Information Administration (EIA) on Wednesday and Thursday, respectively.
Additionally, investors are awaiting US inflation data this week, which could influence expectations for Federal Reserve interest rate adjustments, potentially affecting oil prices positively. The US core Personal Consumption Expenditures Price Index report for April is expected later this week, with forecasts suggesting stability every month.
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A softer-than-anticipated reading on the US PCE price index may accelerate expectations for interest rate cuts, bolstering economic growth prospects and the outlook for energy demand.
Meanwhile, Goldman Sachs, on Monday, revised its global oil demand projection for 2030, anticipating consumption to peak by 2034 due to a potential slowdown in electric vehicle (EV) adoption. This expectation suggests that refineries will continue operating at higher-than-average rates until the end of the decade.
Goldman Sachs increased its 2030 crude oil demand forecast to 10.85 crore barrels per day (bpd) from 10.6 crore bpd, projecting demand to peak at 11 crore bpd in 2034, followed by a sustained plateau until 2040.
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Published: 29 May 2024, 02:41 PM IST