Crude oil prices experienced a notable surge on Monday, with West Texas Intermediate (WTI) marking its largest single-day gain since February, settling at $77.74 per barrel, the highest in a week. This rally comes on the back of expectations for increased energy demand in the coming weeks.
The recent uptick in oil prices follows three consecutive weeks of declines, triggered by the OPEC+ decision on June 2 to maintain overall production cuts through the end of 2025. Additionally, the cartel will start unwinding a voluntary cut of 2.2 million barrels per day over the next 12 months, beginning in October.
Adding to the upward pressure on prices, US Energy Secretary Jennifer Granholm announced that the United States could accelerate the replenishment of the Strategic Petroleum Reserve (SPR) once maintenance on the stockpile concludes by the end of the year. This replenishment is crucial after President Joe Biden ordered the sale of 180 million barrels over six months in 2022 to control fuel prices following Russia’s invasion of Ukraine.
Despite these supportive factors, the market seems to have overreacted to the OPEC+ decisions, driving oil prices to four-month lows last week. OPEC’s upcoming monthly report for May, expected today, shows that its members supplied 26.63 million barrels per day in May, an increase of 145,000 barrels per day from April. Meanwhile, Russia has reported its most significant oil production cut in a year of 683,000 barrels but still produces above its target, having pledged to reduce daily output in May by 0.9 million barrels from a baseline of 9.949 million barrels. OPEC’s demand growth estimate for 2024 stands at 2.2 million barrels per day, double that of the International Energy Agency (IEA).
On a more positive note, a strong US labor market report has instilled confidence in a robust summer driving season, despite a recent dip in gasoline demand to 8.9 million barrels per day from 9.14 million barrels the previous week. With higher US wage growth, consumer spending is expected to remain strong in the coming months. However, the OPEC+ decision to increase supply and the US’s continued production growth, averaging above 13.1 million barrels per day over the last four weeks, pose challenges.
This week’s spotlight will be on the US Federal Reserve’s two-day monetary policy meeting for insights into when interest rate reductions might begin. Additionally, market participants await the US Consumer Price Index (CPI) data for May, along with the monthly oil supply and demand reports from the US Energy Information Administration (EIA) on Tuesday and the IEA on Wednesday.
While prices have recovered from last week’s four-month low of $72.60, macroeconomic data still suggests weaker demand from Asian countries where manufacturing remains in contraction. US data presents a mixed picture. In the short term, we continue to anticipate weakness in oil prices. With WTI trading above its 200-day average of $76, this level will serve as the day’s support, though we expect prices could retrace to $74 this week.
