Oil prices hit 4-week high ahead of OPEC+ policy verdict, US demand hopes; Brent highest since May 1 at $85/bbl

Oil prices extended gains and hit a four-week high on Wednesday, May 29, on expectations that the Organization of the Petroleum Exporting Countries and its allies (OPEC+) will extend production cuts at its upcoming policy meeting on June 2. Crude oil also gained hopes. that fuel consumption or demand will begin to increase with the onset of the peak summer demand season in the US.

Brent crude futures were up 19 cents, or 0.2 percent, at $84.41 a barrel, after hitting their highest since May 1 at $85.02. U.S. West Texas Intermediate futures rose 34 cents, or 0.4 percent, to $80.17, after hitting their highest since May 1 at $80.62. Both benchmarks gained more than 1% on Tuesday. In terms of domestic prices, crude oil futures last traded 0.32% lower at ₹6,616 per barrel on the Multi Commodity Exchange (MCX).

Read also: Built-in Capacity at Targets: Why OPEC+ Members Struggle with Oil Production Capacity – Explained

What determines the price of crude oil?

-Analysts and traders expect the OPEC+ group to maintain voluntary production cuts of about 2.2 million barrels per day (bpd). Analysts say adding more oil to the markets could trigger another downward move in prices. The current price level is already causing many producers to take on additional debt.

-The onset of the Northern Hemisphere summer season, when demand for road and aviation fuels peaks, also supported prices. Initial data suggested a relatively large number of U.S. holiday trips were made during the Memorial Day holiday, the traditional start of the driving season. Air travel was also strong, according to analysts.

-U.S. crude oil inventories are expected to have fallen by about 1.9 million barrels last week. Investors are also awaiting Friday’s April Personal Consumption Expenditure (PCE) price index report due on Friday.

-The US Federal Reserve’s preferred inflation barometer is expected to hold steady each month, which could weigh on interest rate cut expectations and affect oil prices. Expectations about when to cut interest rates have eased, with policymakers wary of sticky inflation.

Also Read: IEA vs OPEC: IEA widens gap with OPEC on 2024 crude demand forecast; June policy decision viewed

Where are prices headed?

“The fighting in the Gaza Strip intensified and another ship in the Red Sea was attacked. The OPEC+ meeting could turn into a non-event as markets widely expect the group to extend production cuts through 2H 2024. Without major supply disruptions in the oil market, upside could remain limited,” said Kaynat Chainwala – Senior Manager, Merchandise. Research – Kotak Securities

”A weaker dollar index and geopolitical tensions in the Middle East are contributing to the rise in crude oil prices. However, weakened hopes for a US interest rate cut 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 is supported at ₹6.580-6.510 and resistance to ₹6,710-6,785,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.