Oil prices rise 2% on summer demand hopes, supply worries

Both contracts gained about 6% in June

By Reuters

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Published: Mon 1 Jul 2024, 9:13 PM

Oil prices climbed about 2 per cent on Monday on hopes of rising demand during the Northern Hemisphere’s peak summer driving season and worries that Opec+ production cuts could result in supply deficits later in the year.

On its first day as the front-month contract, Brent futures for September delivery were up $1.25, or 1.5 per cent, from where that contract closed on Friday to $86.25 a barrel at 11:48 a.m. EDT (1548 GMT) on Monday.

US West Texas Intermediate crude for August delivery rose $1.27, or 1.6 per cent, to $82.81 per barrel, putting the contract on track for its highest close since April 26.

Both contracts gained about 6 per cent in June, with Brent closing at an eight-week high on Friday when the higher-priced August contract was still the front-month contract.

Those monthly gains occurred after the Organisation of the Petroleum Exporting Countries (Opec) and its allies, a group known as Opec+, extended most of its deep oil output cuts well into 2025.

That led analysts to forecast supply deficits in the third quarter as transportation and demand for air-conditioning during the summer eat into fuel stockpiles.

“Demand indicators look solid, especially in the all-important US market, and peak refinery demand for crude is now firmly in place and should last through August,” analysts at JP Morgan said in a note to customers.

In the US, the world’s biggest producer and consumer of oil, oil production and demand for major products both rose to four-month highs in April, supporting prices.

Investors’ focus will turn to remarks from US Federal Reserve Chair Jerome Powell on Tuesday, followed by the release of minutes from the US central bank’s latest policy meeting on Wednesday and US nonfarm payrolls data due on Friday.

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

Hopes of an interest rate cut by the Fed and rising political concerns in Europe and between Israel and Lebanon’s Hezbollah group have also kept a floor under prices, Tony Sycamore, an analyst at financial services company IG, said in a note.

In France, opponents of the country’s far-right movement sought to build a united front to block the path to government of Marine Le Pen’s National Rally (RN) after it made historic gains to win the first round of a snap parliamentary election.

“Increased volatility is anticipated in wider markets this week as elections dominate the agenda in Europe and UK, while in the US concerns over President Biden’s fitness for office, let alone re-election, is dominating the news,” said Ashley Kelty, an analyst at Panmure Gordon.

In the US, top Democrats ruled out the possibility of replacing President Joe Biden as the Democratic nominee after his feeble debate performance last week and called on party members to focus instead on the consequences of former President Donald Trump’s potential return to power.

In Russia, oil product exports from the Black Sea port of Tuapse are set to rise by 59.7 per cent on a month-on-month basis in July to 0.99 million metric tons from the 0.6 million tons scheduled for June.

Traders were also watching for the impact that hurricanes have on oil and gas production and consumption in the Americas.

Hurricane Beryl was barrelling across the Atlantic Ocean toward the Caribbean’s Windward Islands as an “extremely dangerous” storm, threatening to devastate communities with floods, storm surges and life-threatening winds.