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Oil prices steady ahead of OPEC+ meeting

May 27, 2024

Key points:

  • OPEC+ to discuss maintaining voluntary output cuts of 2.2 million barrels per day.
  • Brent crude futures for July increased slightly to $82.23 a barrel.

Oil prices saw minimal movement in early Asian trading on Monday, as market participants are focused on the upcoming OPEC+ meeting scheduled for June 2.

This meeting, initially set for June 1, was delayed by a day and will now be held online. Producers are expected to deliberate on whether to maintain voluntary output cuts for the remainder of the year.

Chart displaying crude oil prices at 77.791 with a trend of 0.99%, reflecting steady prices ahead of the OPEC+ meeting. The chart features moving averages (MA) and MACD indicators. The meeting will focus on the potential extension of the voluntary output cuts of 2.2 million barrels per day (bpd), in addition to the existing cuts of 3.66 million bpd, which are valid through the end of the year. Image hosted by VT Markets, a forex CFDs brokerage

Picture: Oil prices were in a holding pattern as seen on the VT Markets app.

Crude prices edge up in light holiday trading

By 0036 GMT, the Brent crude July contract edged up by 11 cents, reaching $82.23 a barrel, while the more-active August contract rose by 13 cents to $81.97. Similarly, U.S. West Texas Intermediate (WTI) crude futures saw a slight increase of 13 cents, trading at $77.85. The market’s thin trading volume can be attributed to public holidays in both the U.S. and UK.

Also read: More bearish momentum for crude oil 

OPEC+ considers extending output cuts to stabilise market

The central focus of the OPEC+ meeting will be the potential extension of the voluntary output cuts of 2.2 million barrels per day (bpd). This is in addition to the existing cuts of 3.66 million bpd, which are valid through the end of the year.

Combined, these cuts represent nearly 6% of the global oil demand. Three sources from OPEC+ countries have indicated that an extension is likely.

Rising summer travel and EV impact

OPEC has forecasted a robust oil demand growth of 2.25 million bpd for the coming year, contrasting with the International Energy Agency’s (IEA) more conservative estimate of 1.2 million bpd. ANZ analysts highlighted that gasoline usage will be closely monitored as the Northern Hemisphere enters the summer driving season.

They noted that while U.S. holiday travel is expected to reach a post-COVID high, factors such as improved fuel efficiency and the rise of electric vehicles (EVs) could soften oil demand. However, this might be balanced by an increase in air travel.

U.S. inflation data and Fed minutes may impact oil prices

Additionally, market participants are awaiting the release of the U.S. personal consumption expenditures (PCE) index on May 31. This index is the U.S. Federal Reserve’s preferred measure of inflation and could provide further insights into interest rate policy.

The minutes from the recent Federal Reserve meeting revealed that some officials are prepared to tighten interest rates further if necessary to combat persistent inflation. This prospect of prolonged higher interest rates has bolstered the U.S. dollar, making oil more expensive for holders of other currencies.

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