Oil prices extended gains and hit a four-week high on Wednesday, May 29, over expectations that the Organisation of Petroleum Exporting Countries and its allies (OPEC+) will extend output cuts at its upcoming policy meeting on June 2. Crude also gained on hopes that the fuel consumption or demand will start rising as the peak summer demand season kicks off in the US.
Brent crude futures were up 19 cents, or 0.2 per cent, at $84.41 a barrel, after touching the highest since May 1 at $85.02. US West Texas Intermediate futures were up 34 cents, or 0.4 per cent, to $80.17, after hitting the highest since May 1 at $80.62. Both benchmarks gained more than one per cent on Tuesday. Regarding domestic prices, crude oil futures last traded 0.32 per cent lower at ₹6,616 per barrel on the multi-commodity exchange (MCX).
Also Read: Built-in capacity to targets: Why OPEC+ members clash over oil production capacity—Explained
What’s driving crude oil prices?
-Analysts and traders expect the OPEC+ group to keep voluntary production cuts of about 2.2 million barrels per day (bpd) in place. Analysts say that adding more oil to markets could trigger another price move to the downside. The current price level is already causing several producers to take on additional debt.
-The onset of the northern hemisphere summer season, when demand for road and aviation fuels peaks, was also supporting prices. Initial data suggested a relatively high number of US holiday trips have been taken over the Memorial Day holiday, the traditional start of the driving season. Air travel has also been strong, according to analysts.
-US crude oil stockpiles are expected to have fallen by about 1.9 million barrels last week. Investors are also awaiting Friday’s US core personal consumption expenditures (PCE) price index report for April, which is due on Friday.
-The US Federal Reserve’s preferred inflation barometer is expected to hold steady every month, which could sway expectations for interest rate cuts and affect oil prices. Expectations for the timing of rate cuts have see-sawed, with policymakers wary of sticky inflation.
Also Read: IEA vs OPEC: IEA widens gap with OPEC on crude oil demand projections for 2024; June policy decision eyed
Where are prices headed?
‘’The fighting in the Gaza Strip intensified and another vessel in the Red Sea was attacked. OPEC+ meeting might turn into a non-event as markets are widely expecting the group to extend the output cuts into 2H 2024. Without any major supply disruptions in oil market, the upside might remain limited,” said Kaynat Chainwala – Senior Manager, Commodities Research – Kotak Securities
‘’A weaker dollar index and geopolitical tensions in the Middle East are contributing to higher crude oil prices. However, fading hopes for US interest rate cuts are limiting gains. We expect crude oil prices to remain volatile. Crude oil has support at $79.20–78.40 and resistance at $80.65-81.20. In INR, crude oil has support at ₹6,580-6,510 and resistance at ₹6,710-6,785,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.
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Published: 29 May 2024, 10:29 PM IST
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