May 27 2024: Oil prices stabilized in Asian trading on Monday as markets awaited the upcoming OPEC+ meeting on June 2, where producers are expected to discuss the continuation of voluntary output cuts for the rest of the year.
The Brent crude July contract increased by 24 cents to $82.36 per barrel as of 0638 GMT, while the more-active August contract rose by 29 cents to $82.13. U.S. West Texas Intermediate (WTI) crude futures gained 28 cents, reaching $78 per barrel.
Brent ended the previous week about 2% lower, and WTI lost nearly 3% after Federal Reserve minutes revealed that some officials might consider further interest rate hikes if necessary to control persistent inflation.
Public holidays in the U.S. and UK on Monday are expected to result in relatively thin trading.
The Organization of the Petroleum Exporting Countries and allies (OPEC+) have rescheduled their meeting to June 2, where they will discuss extending voluntary output cuts of 2.2 million barrels per day into the second half of the year. Sources from OPEC+ countries indicate that an extension is likely.
Sugandha Sachdeva, founder of SS WealthStreet, noted that today’s gains in oil futures are likely due to expectations of the cuts being extended. She added that the U.S. Producer Price Index (PPI) data scheduled for this week will significantly influence price action and the Federal Reserve’s approach to potential rate adjustments.
Combined with another 3.66 million barrels per day of production cuts valid through the end of the year, the total output cuts represent nearly 6% of global oil demand.
OPEC anticipates another year of relatively strong growth in oil demand of 2.25 million barrels per day, while the International Energy Agency (IEA) expects slower growth of 1.2 million barrels per day.
ANZ analysts highlighted that they will be monitoring gasoline usage as the Northern Hemisphere enters the summer driving season. Although U.S. holiday trips are expected to reach a post-COVID high, improved fuel efficiency and the rise of electric vehicles could keep oil demand soft. However, rising air travel might offset this effect.
Markets will also be closely watching the U.S. personal consumption expenditures (PCE) index, set to be released on May 31, for more signals about interest rate policy. The PCE index is considered the Federal Reserve’s preferred measure of inflation.
Separately, Goldman Sachs raised its forecast for 2030 oil demand to 108.5 million barrels per day (bpd) from 106 million bpd, predicting peak oil demand by 2034 at 110 million bpd, followed by a prolonged plateau until 2040.