The global oil market witnessed a bullish trend on Wednesday, with prices climbing higher in Asian trading. This upward momentum was fueled by two key factors: the anticipated decision by major producers to extend output cuts and the looming start of the peak summer demand season.
As of 6:30 AM GMT, Brent crude futures for July delivery increased by 18 cents, or 0.2%, reaching USD 84.40 per barrel. Similarly, U.S. West Texas Intermediate (WTI) futures for July delivery rose by 28 cents, or 0.3%, to trade at USD 80.11 per barrel. Both benchmarks had already gained over 1% during the previous trading session.
Market participants widely expect the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, to maintain their voluntary production cuts totaling approximately 2.2 million barrels per day (bpd) at their upcoming meeting scheduled for this Sunday. This decision is seen as a concerted effort to stabilise prices and rebalance the global oil market.
Sugandha Sachdeva, the founder of Delhi-based research firm SS WealthStreet, expressed optimism, stating, “The anticipation of OPEC+ members extending their output cuts has injected optimism into the markets, and the move will be seen as a concerted effort to stabilise prices and rebalance the global oil market.”
Additionally, the onset of the summer driving season in the United States, the world’s largest oil consumer, is expected to spur a seasonal uptick in consumption, typically aiding positive momentum in crude oil prices. The Memorial Day holiday on Monday marks the traditional start of the peak demand period in the U.S.
Daniel Hynes, a senior commodity strategist at ANZ Bank, noted, “Initial data suggest a relatively high number of U.S. holiday trips have been taken over the Memorial Day holiday, the traditional start of the driving season. Air travel has also been strong.”
Geopolitical tensions in the Gaza Strip, with Israeli tanks advancing into the heart of the Rafah section, also provided some support for oil prices amid concerns of a potential widening of the conflict in the Middle East, a key supply region.
Investors were also keeping a close watch on U.S. crude inventory data from the American Petroleum Institute, which was delayed due to the Memorial Day holiday. A preliminary Reuters poll on Tuesday suggested that U.S. crude oil stockpiles were expected to have fallen by about 1.9 million barrels last week.
Furthermore, market participants awaited the U.S. inflation data this week, which could sway expectations for Federal Reserve interest rate cuts and consequently impact oil prices. The U.S. core Personal Consumption Expenditures Price Index report for April, the Fed’s preferred inflation barometer, is due on Friday and is expected to hold steady on a monthly basis.