Oil Market Rises on Higher Summer Fuel Demand Hopes

By Adedapo Adesanya

The oil market climbed about 3 per cent on Monday, buoyed by hopes of rising fuel demand this summer despite a stronger US Dollar and expectations that the US Federal Reserve will leave interest rates higher for longer.

The price of Brent was up by $1.96 or 2.5 per cent to $81.58 a barrel and the US West Texas Intermediate (WTI) crude rose by $2.12 or 2.8 per cent to $77.65 per barrel.

The US Fed hiked interest rates aggressively in 2022 and 2023 to tame a surge in inflation and those higher rates have boosted borrowing costs for consumers and businesses, which can slow economic growth and reduce oil demand.

The US Dollar gained against a basket of other currencies as the Euro fell sharply due to political uncertainty in Europe after gains by far-right parties in voting for the European Parliament prompted French President Emmanuel Macron to call an emergency national election.

A stronger US dollar can reduce demand for oil by making dollar-denominated commodities like oil more expensive for holders of other currencies.

Oil posted a third straight weekly loss last week on concerns that a plan to unwind some production cuts by the Organisation of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, from October will add to rising supply.

Despite the OPEC+ cuts, oil inventories have risen. US crude stocks increased in the latest week, as did gasoline (petrol) stocks.

Meanwhile, Goldman sees a $75 floor for Brent as lower prices promote demand and a $90 ceiling due to higher-than-expected global inventories and the OPEC+ production decision.

The bank said in a report that solid summer transport demand will push the oil market into a third-quarter deficit of 1.3 million barrels per day.

Investors are now looking to the release of May U.S. consumer price index data on Wednesday for clues as to when the Fed may begin lowering interest rates.

The market is also awaiting the completion of the US Federal Reserve’s two-day policy meeting on Wednesday, during which the central bank is widely expected to keep interest rates unchanged.

According to Reuters, markets have lowered expectations for US Federal Reserve rate cuts in September following stronger-than-expected job statistics on Friday, with pricing now indicating a less than 50 per cent chance of a decrease.