Crude oil prices have surged to a two-month high, fueled by optimistic demand outlooks and a significant decline in US stockpiles, raising concerns about a potential resurgence in inflation.
Last week, crude oil prices marked a two-week gaining streak, reflecting a 7% increase for both Brent and WTI futures. This rise is attributed to positive expectations for summer fuel consumption in the Northern Hemisphere and a drawdown in US stockpiles.
Brent and WTI Futures
Brent futures, expiring on September 25, soared to $86.24 per barrel on Friday, the highest since May 1, before opening at just above $84 per barrel on Monday. Similarly, WTI futures, expiring on August 4, climbed to $82 per barrel last Thursday, a peak not seen since April 30, before settling at $80.41 per barrel on Monday.
OPEC’s Output Cuts
On June 3, the Organisation of the Petroleum Exporting Countries (OPEC) and its allies agreed to extend oil output cuts of 2.2 million barrels per day until the end of September, with a gradual phase-out starting in October. Although this decision initially reduced oil prices, they rebounded quickly from June 5 onward.
US Crude Oil Inventory
According to the US Energy Information Administration (EIA), crude oil stockpiles declined by 2.5 million barrels to 457 million barrels for the week ending June 14. This exceeded analysts’ expectations of a 2.2 million barrel reduction. The current inventory level is 4% below the five-year average for this period. Additionally, gasoline stockpiles fell by 2.3 million barrels to 231 million barrels, the first decline since May 17. The EIA forecasts increased demand for distillate fuel in the second half of the year due to rising manufacturing activity.
US oil rig counts have also been decreasing for four consecutive weeks since the week ending May 31, with the total number dropping to 485 last week from a peak of 511 on April 19, according to Baker Hughes.
Rising Oil Demand
A JP Morgan Chase report indicated that fuel consumption in the US surged to a post-pandemic high of 9.4 million barrels per day for the week ending June 14. With the Independence Day holiday approaching, fuel consumption is expected to continue increasing, with 71 million Americans projected to travel.
Globally, oil demand has risen by 1.4 million barrels per day due to the busy summer travel season in Europe and Asia. China, the world’s largest oil importer, is expected to see a 1.7% rise in fuel demand in 2024, equating to 3 million tons, according to Sinopec, China’s largest refiner. Chinese retail sales also rose by 3.7% year-on-year, surpassing the estimated 3.0% and the previous month’s 2.0%.
Geopolitical Tensions and Weather Risks
Geopolitical tensions, particularly the escalating conflict in the Middle East, have added to the upward pressure on oil prices. Israeli officials have declared readiness for an “all-out war” with Lebanon’s Hezbollah, which has threatened a “battle with no limitations” with Israel. This conflict has raised fears of disruptions in oil production and shipments.
Seasonal severe weather patterns also pose risks. The US National Oceanic and Atmospheric Administration defines the Atlantic hurricane season as starting on June 1, which could threaten production and refinery operations.
Inflation Concerns
Despite a retreat at the opening on Monday, both Brent and WTI futures remain at nearly two-month high levels, sparking concerns that rising gasoline prices could elevate global inflation and slow the pace of rate cuts by central banks.
Recent data showed persistent inflation in major European economies in May, driven by high utility and petroleum prices. The surge in crude oil prices may further complicate the inflation outlook. Despite a rate cut by the European Central Bank (ECB) this month, the bank maintained a hawkish stance, indicating future decisions will be made on a “meeting-by-meeting” basis. Similarly, most central banks, including the US Federal Reserve, have tempered expectations of more than one rate cut this year, given that inflation remains above target levels.
Given the positive correlation between crude prices and inflation since the Ukraine-Russia war, any signs of rising oil prices could impact stock market sentiment. Investors will closely monitor upcoming inflation data from global economies in the final week of the month.
Related topics:
Geopolitical Tensions Propel Crude Oil Prices Higher
Brent Crude Oil Surpasses $84.77 Mark, Closes Higher
Gasoline and Diesel Prices to Drop Despite Rising Crude Oil Costs
