Market Analysis
Oil prices remained stable on Tuesday, hovering near the recent two-month highs following a 1.9% increase in the previous session. This stability is driven by expectations of increased fuel demand during the summer travel season and potential U.S. interest rate cuts that could stimulate economic growth.
As of 0313 GMT, Brent crude futures rose by 20 cents to $86.80 per barrel, marking their highest close since April 30. Similarly, U.S. West Texas Intermediate (WTI) crude climbed 15 cents to $83.53 a barrel, its peak since April 26.
Vandana Hari, founder of oil market analysis firm Vanda Insights, noted that the current movement in oil prices appears more influenced by sentiment and market fears rather than underlying fundamentals. Factors such as anticipated summer fuel demand, heightened geopolitical tensions between Israel and Iran, and concerns about Hurricane Beryl are contributing to this sentiment.
In the U.S., the world's largest oil consumer, gasoline demand is expected to rise with the onset of the summer travel season, particularly during the Independence Day holiday period. The American Automobile Association forecasts a 5.2% increase in overall travel compared to 2023, with car travel alone up by 4.8% year-over-year.
Analysts from ANZ highlighted that this uptick in travel could help recover gasoline demand after a subdued first half of 2024.
On the supply side, market participants are monitoring Hurricane Beryl, which could potentially disrupt U.S. oil refining and offshore production. However, current forecasts indicate that the storm is likely to move into Mexico's Bay of Campeche, potentially impacting oil production in that region.
Meanwhile, signs of easing inflation in the U.S. have renewed speculation that the Federal Reserve might consider interest rate cuts, possibly as soon as September. Recent reports showing a third consecutive month of contraction in U.S. manufacturing activity, along with lower input prices for manufacturers, suggest a possible downturn in economic activity. This scenario could prompt the Fed to lower rates, thereby boosting both economic activity and oil demand.
However, despite these factors supporting prices, concerns persist over weaker-than-expected demand growth. Data indicating lower crude imports to Asia in the first half of 2024, particularly into China, the world's largest oil importer and second-largest consumer, underscores these demand concerns.
Paraphrasing text from "Reuters" all rights reserved by the original author.