May 28 2024: Oil prices edged higher on Tuesday, continuing to recover from more than three-month lows. The focus is on upcoming inflation data and a meeting of top producers to discuss output levels.
At 08:00 ET (12:00 GMT), Brent oil futures rose 0.1% to $83.04 a barrel, while West Texas Intermediate crude futures gained 0.1% to $78.64 a barrel.
Crude prices increased over 1% on Monday in light trading due to public holidays in the UK and the U.S., rebounding after hitting the lowest levels since early February last week.
Inflation Data Awaited for Rate Cues
This week, key inflation readings from the U.S. and other major economies are in focus. In the U.S., the PCE price index, the Federal Reserve’s preferred inflation gauge, is due on Friday and is expected to show a slight cooling in inflation. However, it is still anticipated to remain well above the Fed’s 2% annual target, potentially leading to sustained higher interest rates.
Last week, concerns over the Fed’s stance on inflation pressured oil prices, as several Fed officials warned that persistent inflation would prevent any easing of monetary policy. This also strengthened the dollar, further weighing on oil prices. High interest rates are expected to dampen economic activity, thereby reducing oil demand.
Inflation data from the eurozone, Australia, and Japan are also due this week and will influence monetary policy expectations for their respective central banks. Markets are also factoring in a potential interest rate cut by the European Central Bank next week. Additionally, purchasing managers index readings from top oil importer China are expected this week.
OPEC+ Meeting Awaited for Supply Cues
Attention is also on the upcoming meeting of the Organization of Petroleum Exporting Countries and allies (OPEC+), scheduled online for June 2. Traders will look to see if the cartel agrees to extend its current voluntary production cuts of 2.2 million barrels per day beyond the June 30 deadline.
OPEC+ has reduced production over the past year to support oil prices, but this has only provided temporary support as markets remain concerned about sluggish demand.
“The recent weakness in the market increases the likelihood of a full rollover of OPEC+ additional voluntary cuts at least through the third quarter of this year,” said analysts at ING in a note. “Expectations for such action are growing, so anything less will disappoint the market. However, fundamentally the market only needs to see a partial rollover, so there is a risk that OPEC+ overtightens the market in the third quarter of the year.”
(Ambar Warrick contributed to this article.)
