Oil prices steadied on Monday with Brent crude trading near $80 per barrel and West Texas Intermediate (WTI) hovering around $76.
This stabilization follows a 2.5% decline last week, spurred by OPEC+’s announcement to increase supply starting from the third quarter.
The market is now keenly awaiting a series of industry reports and a crucial decision from the Federal Reserve on interest rates.
Last week’s drop in oil prices was exacerbated by algorithmic trading, which intensified the market’s reaction to OPEC+’s decision.
The alliance’s move to restore supply comes after months of production cuts aimed at stabilizing prices amid fluctuating demand.
Traders are now looking ahead to monthly reports from OPEC and the International Energy Agency (IEA), scheduled for Tuesday and Wednesday, respectively.
These reports are expected to provide valuable insights into the current health and future outlook of the oil sector.
Also, the Federal Reserve’s mid-week announcement on interest rates is being closely watched.
Strong economic data and persistently high inflation have tempered expectations that the Fed will soon pivot to lower borrowing costs, a shift that could significantly impact market dynamics.
The oil market has been on a downward trend since early April, driven by a weakening demand outlook.
This bearish sentiment is reflected in the positioning of money managers, who have significantly reduced their net long positions on Brent crude to the least bullish levels in a decade, according to data going back to 2011. Similarly, net long positions for the US benchmark WTI have also declined.
Despite the overall downturn, certain segments of the refined products market, such as jet fuel, are showing signs of strength.
A resurgence in air travel, approaching pre-COVID-19 levels, is driving increased demand for jet fuel, offering a glimmer of optimism within the broader market.
Geopolitical factors continue to play a role in the oil market’s volatility. Tensions remain high in the Middle East, where an Israeli operation in Gaza resulted in the release of four hostages but also led to the deaths of over 200 Palestinians, according to the Hamas-run government media office.
Meanwhile, in Europe, far-right parties made significant gains in the European Parliament elections, adding another layer of uncertainty to the geopolitical landscape.
Trading volumes are expected to be thin during Asian hours due to holidays in mainland China and Hong Kong, which could contribute to lower liquidity and potential price swings.
As the market navigates these multifaceted challenges, the upcoming reports from OPEC and the IEA, along with the Federal Reserve’s decision, will be pivotal in shaping the near-term outlook for oil prices.
For now, traders and analysts alike will be watching closely to gauge the future direction of the market.
