Tight Supply and Economic Concerns Impact Oil Prices
Oil prices experienced a modest increase on Monday as market focus shifted towards tightening supplies resulting from OPEC+ production cuts and renewed U.S. purchases for reserves. These factors outweighed worries about fuel demand in major oil-consuming countries, such as the United States and China.
Brent crude futures climbed by 39 cents or 0.5% to reach $74.56 a barrel by 1120 GMT, while U.S. West Texas Intermediate crude stood at $70.45 a barrel, showing a gain of 41 cents or 0.6%.
Although last week marked the fourth consecutive week of declines for both benchmark prices, which is the longest such streak since September 2022, concerns about a potential U.S. economic slowdown and risks associated with a historical default in early June were counterbalanced by positive sentiment regarding OPEC+’s efforts and increased purchases for strategic reserves.
Despite these mixed sentiments, some experts maintain a cautious outlook on crude oil due to the uneven reopening of the Chinese economy, concerns over a U.S. growth slowdown, the approaching debt ceiling deadline, and the strengthening of the U.S. dollar. Analyst Tony Sycamore from IG highlighted the potential for tepid market sentiment towards crude oil under these circumstances.
Looking ahead, global crude supplies are expected to tighten in the second half of the year as OPEC+ countries continue with additional output cuts, particularly reducing sour crude volumes. In April, the group announced an additional output reduction of approximately 1.16 million barrels per day, bringing the total volume of cuts to 3.66 million bpd.
However, Iraq’s oil minister, Hayan Abdel-Ghani, indicated that he does not anticipate further output cuts during OPEC+’s upcoming meeting on June 4. In other developments, the resumption of northern Iraqi crude oil flows to Turkey’s Ceyhan port has yet to occur following a request from Baghdad last week, contributing to the overall tightness in global supplies.
On the demand side, the United States may soon initiate repurchasing oil for its Strategic Petroleum Reserve (SPR) after a congressionally mandated sale is completed in June. Energy Secretary Jennifer Granholm informed lawmakers of this possibility during a recent session.
Additionally, officials familiar with the discussions have revealed that the leaders of the Group of Seven (G7) nations could announce new measures during their meetings on May 19-21 to target sanctions evasion involving third countries. These measures are expected to undermine Russia’s future energy production and restrict trade supporting the Russian military.
As the oil market continues to navigate supply dynamics and economic uncertainties, investors and industry participants closely monitor developments to assess the direction of oil prices and the overall energy landscape.
