Global oil prices experienced a significant surge as rate hike expectations intensified and supply constraints propelled Brent crude above the $80 per barrel mark.
Traders and investors have been on edge as they closely monitor the decisions of central banks and geopolitical developments to get clues about possible market direction.
The week began with cautious optimism as Brent crude oil rose by 4 cents to $81.11 a barrel by 06:00 am, reflecting the prevailing sentiment among market participants.
At the same time, U.S. West Texas Intermediate (WTI) crude also saw a similar rise, climbing by 4 cents to $77.11 a barrel.
The recent gains marked the fourth consecutive week of positive performance for the benchmarks, driven by expectations of tightening supply dynamics following the production cuts enforced by the OPEC+ alliance.
However, beyond production dynamics, geopolitical tensions added to the complexity of the situation as last week saw an escalation in fighting in Ukraine after Russia withdrew from a U.N.-brokered safe sea corridor agreement for grain exports.
While summer demand for gasoline and jet fuel has been relatively strong, Citi Research emphasized that the rise in oil prices could largely be attributed to “tightening conditions as Saudi oil output cuts impact the market.”
These output cuts have continued to exert influence, despite the challenges posed by the strengthened greenback due to rising interest rates, making dollar-denominated commodities more expensive for holders of other currencies.
Amidst the growing concerns over rate hikes, investors have factored in quarter-point increases from both the Federal Reserve and the European Central Bank, leading to heightened anticipation for what Federal Reserve Chair Jerome Powell and ECB President Christine Lagarde will communicate about future rate hike plans.
As the world’s No. 2 consumer of oil, China remains a significant player in the energy markets. Market participants are closely observing Beijing’s response to its flagging economy, expecting targeted stimulus measures to bolster private investment in specific infrastructure sectors, which could further impact global oil demand.
Looking ahead, market volatility is likely to persist as the intersection of central bank policies, geopolitical tensions, and global economic developments continues to shape oil prices.
Analysts from the National Australian Bank are optimistic, forecasting further upside potential for oil prices over the summer, with an expected average price of $83 a barrel in the third quarter.
