Crude oil prices experienced a downward trajectory for the second consecutive trading session on Monday, weighed down by the strengthening U.S. dollar. This development was prompted by the release of robust employment data in the United States on Friday, which led investors to reevaluate their expectations for potential interest rate cuts, consequently boosting the dollar’s value.
Brent crude futures and U.S. West Texas Intermediate (WTI) crude futures both witnessed modest declines, with Brent crude slipping 4 cents to USD 79.58 per barrel, and WTI crude futures sliding 4 cents to USD 75.49 per barrel as of 0036 GMT.
The robust U.S. jobs report, which surpassed analysts’ expectations for job creation in May, prompted investors to scale back their anticipation of interest rate cuts by the Federal Reserve. This, in turn, triggered a rally in the U.S. dollar, making dollar-denominated commodities like oil more expensive for holders of other currencies.
The euro also faced pressure, reflecting the uncertainty in the eurozone after French President Emmanuel Macron called for snap legislative elections later in June. This move came after Macron’s centrist coalition suffered a significant setback in the European Union vote, with Marine Le Pen’s far-right party emerging victorious.
“Regarding Macron and elections, it does create another layer of uncertainty, coming after the upside surprise in U.S. non-farm payrolls, which saw yields scream higher,” commented Tony Sycamore, a Sydney-based analyst at IG.
Market participants are closely monitoring the upcoming meetings of the U.S. Federal Reserve and the Bank of Japan this week, with the potential for more hawkish outcomes adding to the uncertainty. “That will likely create more angst amongst some of the member states of OPEC as to when they can return their cuts back to the market given the negative reception this proposal received last week post the OPEC meeting,” Sycamore added.
Both Brent and WTI crude benchmarks experienced their third consecutive weekly loss last week, driven by concerns over the Organization of the Petroleum Exporting Countries (OPEC) and their allies’ plan to unwind production cuts starting in October. This move is expected to contribute to an already rising global supply.
The announcement coincided with a rise in total commercial OECD crude and product stocks on land to an estimated 48 million barrels in May, compared with the average build of 30 million barrels during the 2015-2019 period, according to energy consultancy FGE.
However, analysts and traders anticipate that summer holiday demand will help reduce stockpiles and support prices. “We continue to expect the market to firm up and crude prices to reach mid-USD80/bbl levels as we move into 3Q 2024, but it will likely need a convincing signal of tightening from preliminary inventory data,” FGE stated.
In the United States, the government has stepped up its purchasing of crude oil to replenish the Strategic Petroleum Reserve after prices fell. Meanwhile, U.S. energy firms cut the number of oil and natural gas rigs operating to the lowest level since January 2022, as reported by energy services firm Baker Hughes on Friday.
In the Middle East, Iraq’s Oil Minister Hayan Abdel-Ghani revealed progress in talks with officials from the Kurdistan region and representatives of international companies operating there. These discussions aim to reach an agreement to resume oil exports via the Iraq-Turkey oil pipeline, which once handled approximately 0.5% of the global oil supply.