July 2 2024: Oil prices remained steady on Tuesday, maintaining their position near the two-month highs achieved in the previous session. This stability is driven by expectations of increased fuel demand during the summer travel season and the potential for U.S. interest rate cuts, which could stimulate economic growth.
Brent crude futures rose by 28 cents to $86.88 per barrel as of 0634 GMT, following a 1.9% increase in the previous session, marking the highest close since April 30. Similarly, U.S. West Texas Intermediate (WTI) crude increased by 20 cents to $83.58 per barrel, after a 2.3% rise to its highest since April 26.
Vandana Hari, founder of oil market analysis provider Vanda Insights, noted that the oil price movement “appears to be more fear and sentiment driven than fundamentals,” citing the outlook for summer fuel demand, the heightened risk of conflict between Israel and Iran, and Hurricane Beryl as supportive factors.
In the U.S., the world’s largest oil consumer, gasoline demand is expected to rise significantly as the summer travel season coincides with the Independence Day holiday this week. The American Automobile Association has forecasted a 5.2% increase in travel during the holiday period compared to 2023, with car travel alone up by 4.8% year-over-year.
“This could help gasoline demand recover after a subdued first half of 2024,” analysts from ANZ wrote in a note.
On the supply side, markets are preparing for potential disruptions from Hurricane Beryl on U.S. oil refining and offshore production. Current forecasts suggest the storm may move into Mexico’s Bay of Campeche, potentially affecting oil production there. Beryl struck the Caribbean as a category 4 storm on Monday, with the U.S. National Hurricane Center warning of an “extremely dangerous situation” after the storm intensified from a category 1 to a category 4 within 10 hours.
Signs of decreasing inflation in the U.S. are renewing hopes that the Federal Reserve might cut interest rates, possibly in September. A report on Monday indicated that U.S. manufacturing activity contracted for the third consecutive month, with prices paid by manufacturers for some inputs dropping to their lowest level in six months. Coupled with a Commerce Department report on Friday showing unchanged U.S. inflation data for May, this could strengthen the case for lowering interest rates, a move that would boost economic activity and oil demand.
Nevertheless, limited demand growth has tempered gains in oil prices. Data indicates that crude imports to Asia, the world’s largest oil-consuming region, were lower in the first half of 2024 compared to last year, primarily due to reduced imports into China, the world’s largest oil importer and second-largest consumer.
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