Oil Prices Rise Amid OPEC+ Output Cut Expectations and Peak Summer Demand
OPEC+ Output Cuts and Summer Demand
Oil prices climbed in Asian trading on Wednesday, driven by expectations that major producers will maintain output cuts at an upcoming meeting, coupled with the onset of the peak summer demand season which is likely to boost fuel consumption.
Brent Crude Futures
July delivery increased by 18 cents, or 0.2%, to $84.40 a barrel by 0630 GMT.
U.S. West Texas Intermediate (WTI) Futures
July delivery rose by 28 cents, or 0.3%, to $80.11 a barrel.
Both benchmarks had already gained more than 1% the previous day.
OPEC+ Output Cuts
The Organization of the Petroleum Exporting Countries and its allies, including Russia, collectively known as OPEC+, are expected to keep voluntary production cuts totaling about 2.2 million barrels per day in place. This expectation has buoyed market sentiment, suggesting a continued effort to stabilize prices and balance the global oil market.
Sugandha Sachdeva, founder of SS WealthStreet, noted, "The anticipation of OPEC+ members extending their output cuts has injected optimism into the markets and the move will be seen as a concerted effort to stabilize prices and rebalance the global oil market."
Summer Driving Season
The start of the U.S. summer driving season, marked by the Memorial Day holiday, traditionally leads to increased fuel consumption. This seasonal uptick is expected to support crude oil prices.
Sachdeva added, "The onset of the summer driving season in the U.S. spurs a seasonal uptick in consumption and typically aids a positive momentum in crude oil prices."
Daniel Hynes, senior commodity strategist at ANZ Bank, observed, "Initial data suggest a relatively high number of U.S. holiday trips have been taken over the Memorial Day holiday, the traditional start of the driving season. Air travel has also been strong."
Geopolitical Factors
Increased fighting in the Gaza Strip, as Israeli tanks advanced to the heart of the Rafah section, has also provided some support for prices amid concerns of a potential widening of the conflict in the Middle East, a key oil supply region.
U.S. Crude Inventory Data
Investors are keenly awaiting U.S. crude inventory data from the American Petroleum Institute, which has been delayed by a day due to the Memorial Day holiday. Preliminary data from a Reuters poll indicated that U.S. crude oil stockpiles were expected to have fallen by about 1.9 million barrels last week.
U.S. Inflation Data
Investors are also looking ahead to U.S. inflation data, which could influence expectations for Federal Reserve interest rate cuts and subsequently impact oil prices. The U.S. core Personal Consumption Expenditures Price Index report for April, the Fed's preferred inflation measure, is due on Friday and is expected to hold steady on a monthly basis.
Expectations regarding the timing of rate cuts have fluctuated, with policymakers remaining cautious as data continues to show persistent inflationary pressures.
