Global oil prices stabilized on Tuesday, with the potential for OPEC+ to maintain supply cuts at its June 2 meeting and expectations of robust U.S. summer fuel demand counterbalancing concerns over prolonged high U.S. interest rates.
On Monday, oil prices rose over 1% in subdued trading due to public holidays in Britain and the United States. The start of the U.S. summer driving and vacation season bolstered hopes for strong fuel demand.
By 0810 GMT, the July contract for Brent, the global benchmark, increased by 17 cents, or 0.2%, to US$83.27 a barrel. U.S. West Texas Intermediate (WTI) crude reached US$78.79, up US$1.07, or 1.4%, from Friday’s close, having traded through the U.S. Memorial Day holiday without a settlement.
“Despite the indisputably brighter mood seen in the last two days, interest rate concerns will most plausibly act as a (brake) on further attempts to send oil prices meaningfully higher in the immediate future,” said Tamas Varga of broker PVM.
“It is a fair assumption that no changes in production levels will be forthcoming,” he added regarding the OPEC+ meeting.
Concerns about prolonged high U.S. interest rates contributed to crude’s weekly loss last week. Elevated rates increase borrowing costs, which can reduce economic activity and oil demand.
Despite expectations that high interest rates might weaken oil demand growth, UBS analyst Giovanni Staunovo noted in a client report that “real-time mobility data indicates oil demand growth is still broadly healthy.”
In the air travel sector, U.S. domestic flight seat numbers for May rose by 5% month-on-month and nearly 6% year-on-year to just over 90 million, according to flight analytics firm OAG, exceeding 2019 levels.
Looking ahead, OPEC+ producers will hold an online meeting on Sunday. Traders and analysts anticipate that the 2.2 million barrels per day of voluntary production cuts will remain in place, potentially boosting prices further.
“We expect oil prices to move higher in the coming days,” said Satoru Yoshida, a commodity analyst with Rakuten Securities, who cited anticipated continued voluntary output cuts by producers.
Yoshida also stated that assistance will come from the start of the driving season in the United States.