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BusinessOil inches up on expectations of increased fuel demand during summer

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Oil inches up on expectations of increased fuel demand during summer

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Oil prices inched higher on Monday, driven by anticipated growth in fuel demand this summer, though gains were constrained by a stronger dollar, which was bolstered by diminishing prospects of immediate interest rate cuts.

Brent crude futures rose by 15 cents, or 0.2%, to reach $79.77 per barrel by 0644 GMT, while U.S. West Texas Intermediate crude futures increased by 0.1%, or 10 cents, to $75.63 per barrel.

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On Friday, data revealed the U.S. added more jobs than anticipated last month, prompting investors to lower their expectations for rate cuts, which in turn bolstered the dollar. A stronger dollar makes commodities priced in dollars, such as oil, more expensive for holders of other currencies.

The euro also faced pressure, reflecting uncertainty in the eurozone after French President Emmanuel Macron called for snap legislative elections in late June, following a significant defeat by Marine Le Pen’s far-right party in the European Union vote.

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“Regarding Macron and the elections, it does create another layer of uncertainty, coming after the upside surprise in U.S. non-farm payrolls, which saw yields scream higher,” Tony Sycamore, a Sydney-based analyst at IG, said.

Currently, attention is directed towards the upcoming meetings of the U.S. Federal Reserve and the Bank of Japan this week, with concerns regarding the possibility of more hawkish outcomes, according to Sycamore.

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“That will likely create more angst among 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.”

Brent and WTI experienced their third consecutive weekly decline last week amid worries that the Organization of the Petroleum Exporting Countries and allied nations, collectively known as OPEC+, plan to gradually ease production cuts starting in October, potentially adding to the growing global supply.

This announcement occurred simultaneously with an increase in total commercial OECD crude and product inventories on land, estimated at 48 million barrels in May by energy consultancy FGE, compared to an average build of 30 million barrels during 2015-2019.

Analysts and traders anticipate that summer vacation demand will decrease inventories and bolster prices.

“We continue to expect the market to firm up and crude prices to reach mid-$80/bbl levels as we move into 3Q 2024, but it will likely need a convincing signal of tightening from preliminary inventory data,” FGE said.

Goldman Sachs analysts expect Brent to rise to $86 a barrel in the third quarter.

“We expect that healthy consumers and solid summer demand for transportation and cooling will push the market into a sizable Q3 deficit of 1.3mb/d.”

In the U.S., Washington stepped up purchasing of crude oil to replenish the Strategic Petroleum Reserve after prices fell. Last week, U.S. energy firms cut the number of oil and natural gas rigs operating to the lowest since January 2022, energy services firm Baker Hughes (BKR.O) said on Friday.

In the Middle East, Iraq’s Oil Minister Hayan Abdel-Ghani said there has been progress in talks with Kurdistan region officials and representatives of international companies operating there for a deal to resume oil exports via the Iraq-Turkey oil pipeline that once handled about 0.5% of global oil supply.

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