Oil rises above $1 after US dollar weakens to one-week low; Brent hits $84/bbl ahead of OPEC+ policy verdict

Crude oil prices rose more than $1 a barrel on Tuesday, May 28, on expectations that the Organization of the Petroleum Exporting Countries and allies (OPEC+) would maintain current crude supply curbs, while a weaker US dollar caused the commodity to be more attractive. holders of other currencies.

The July contract for global benchmark Brent crude rose $1.04, or 1.3 percent, to $84.14 a barrel. U.S. West Texas Intermediate (WTI) crude was at $79.78, up $2.06, or 2.7%, from Friday’s close after trading on Monday on the U.S. Memorial Day holiday without a agreement, according to Reuters.

On Monday, oil extended a more than 1 percent gain in trade that was dampened by the holiday, on hopes of a pick-up in demand from the start of the U.S. summer and driver season. Turning to domestic prices, crude oil futures last traded 1.41% higher at ₹6,639 per barrel on the Multi Commodity Exchange (MCX).

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What determines the price of crude oil?

-OPEC+ members will decide the next production supply policy on June 2 in a virtual meeting. Analysts estimate that 2.2 million barrels per day of voluntary production cuts will remain in place. “We expect OPEC+ to extend the current cut for at least another three months at its next meeting,” UBS analysts said in a note.

-Analysts said this week’s upward tracking is being facilitated by a significant weakening of the dollar and a growing consensus that OPEC+ will extend production cuts at the upcoming weekend meeting.

– The US dollar fell 0.1% to a more than one-week low. Concerns about U.S. interest rates staying high for longer contributed to a weekly loss in crude oil last week. Higher rates increase the cost of borrowing, which can dampen economic activity and demand for oil.

-Investors will be watching the core price index for US personal consumption expenditures (PCE), which is a leading indicator of inflation for the Federal Reserve, due on Friday. Despite the rally in prices over the past two sessions, analysts noted that interest rate concerns will most plausibly act as a brake on further attempts to raise oil prices significantly in the immediate future.

– Air travel data also helped boost oil prices, with US seats on domestic flights for May up five percent month-on-month and nearly six percent year-over-year to just over 90 million, data from flight analytics firm OAG showed. exceeding 2019 levels.

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Where are prices headed?

Analysts noted that WTI crude oil futures rose on Monday, recovering from a three-month low, following the expected decision of OPEC+ investors this weekend.

“OPEC is widely expected to extend current supply curbs until 2H 2024 to avoid a glut and support crude oil prices that are already struggling with China’s fragile economic outlook and rising non-OPEC supply,” it said Kaynat Chainwala, Senior Manager-Commodity Research, Kotak. Securities.

“Tensions in the Middle East have risen following the death of an Egyptian soldier during a clash with Israeli troops, who may also provide some support,” Chainwala added. “As the dollar index remained flat while crude oil prices found support from lower levels in the last couple of days,” said Jateen Trivedi, VP Research Analyst – Commodities & Currency, LKP Securities.

Disclaimer: The opinions and recommendations provided in this analysis are those of individual analysts or brokerage firms, not of the Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.