WTI crude oil futures held steady around $78 a barrel on Tuesday, after rising 3 percent in the previous session on expectations of increased demand for fuel in the summer.
The U.S. government may also fill the Strategic Petroleum Reserve at a faster pace as it aims to buy back oil priced around $79 per barrel. However, I remain cautious as I await the Federal Reserve's policy decision and U.S. inflation data this week.
Positive U.S. employment data released on Friday raised concerns that the Fed may keep interest rates higher for longer, which could hurt the economic outlook and energy demand. Markets will be interested in data on U.S. crude oil inventories from the EIA today.
OPEC+'s announcement to ease production limits by the end of the year has created much discussion about recent changes in oil prices. But personally, I am not worried because if prices continue to fall, the oil cartel may have to delay or cancel the plan to phase down production as early as August.
It would not be surprising if OPEC+ decides to postpone production cuts and announce this decision as early as early August if oil prices remain around $70.
Earlier this week, OPEC+ announced that production cuts of 1.66 million barrels per day will remain in place until 2025. In addition, voluntary production cuts of 2.2 mbpd will be maintained for another three months until September and then gradually reduced.
Lower oil prices are a blow to major oil producers such as Saudi Arabia and Russia. The former needs an oil price above $90 a barrel to balance its budget, while the latter needs an even higher price to support the ongoing military intervention in Ukraine.
Although there may be a decrease in oil prices, this is likely to remain subdued during the summer due to seasonal demand that will keep crude stocks in check.
In the summer season, we expect sustained demand for oil and a reduction in global inventories from July to September. Therefore, we maintain a positive view on oil prices in the summer months.
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