Oil Prices Steady Amid Rising Demand Expectations and Investor Caution
Overview
Oil prices were little changed on Tuesday after a rise in the previous session, buoyed by expectations of increased fuel demand this summer. However, investors remained cautious ahead of key U.S. consumer price data.
Market Performance
Brent Futures: For August settlement, Brent futures eased 5 cents to $85.96 a barrel as of 0640 GMT after gaining 0.9% on Monday.
U.S. Crude Futures: U.S. crude futures were down 3 cents at $81.60 a barrel after climbing 1.1% a day earlier.
Both benchmarks rose about 3% last week, marking two straight weeks of gains.
Rising Demand and Declining Stockpiles
Gasoline demand is increasing, and oil and fuel stockpiles have declined as the U.S. enters its peak summer consumption period.
U.S. crude oil stockpiles are expected to have fallen by 3 million barrels in the week to June 21, according to a preliminary Reuters poll.
Gasoline stocks are also expected to have declined, while distillate inventories likely rose last week.
Analyst Insight
"The surge in oil prices was triggered by an optimistic demand outlook and reduced U.S. inventories. With the Northern Hemisphere entering a hot summer and the upcoming hurricane season, demand is expected to continue increasing in the coming months," said independent market analyst Tina Teng.
Investor Caution
Investors remain cautious about potential further oil price increases due to concerns that high interest rates will limit growth in fuel consumption by curtailing the economy.
The release of the personal consumption expenditures index, the Fed's preferred measure of price gains, on Friday is expected to provide more clues to the outlook for rates.
Geopolitical Factors
Continued Ukrainian attacks on Russian oil infrastructure, including a recent strike on the Ilsky refinery, are impacting crude and fuel supply.
The European Union has adopted a package of sanctions against Russia over its war in Ukraine, affecting 27 vessels, including those operated by Russian state-owned shipping firm Sovcomflot.
Market Concerns
"Adding to this, the market remains on edge ahead of elections in Iran later this week. A more hard-line president could result in more direct confrontations with the U.S., Israel, and Saudi Arabia," ANZ Research analysts noted.
Oil prices are being influenced by a mix of rising demand expectations and investor caution ahead of critical economic data and geopolitical events. The market's direction will likely be shaped by upcoming U.S. inflation data and global political developments.
