The looming supply cuts from Saudi Arabia and other OPEC+ producers offset concerns about weakened global economic growth that may reduce fuel demand.
Last week, crude oil prices increased by over 6% following the unexpected announcement from OPEC+ to implement a new round of production cuts starting in May. The OPEC+ includes the Organization of the Petroleum Exporting Countries (OPEC) and allies such as Russia.
Brent crude increased by 19 cents, or 0.2%, to reach $85.31 per barrel at 1200 GMT on Monday. Meanwhile, U.S. West Texas Intermediate crude climbed 9 cents to reach $80.79.
According to Warren Patterson, ING’s head of commodities research, those who were previously bearish about the market are now questioning the demand outlook due to the production cuts. In contrast, those who were bullish see an even tighter market in the second half. Patterson himself belongs to the latter group and believes that prices will continue to rise throughout the year.
The recent shutdown of Iraq’s northern exports has further contributed to the tightness in oil supply. Although a deal was signed last week to restart the flows, exports had not yet resumed as of Thursday.
In addition, oil prices were supported by a larger-than-anticipated reduction in U.S. crude inventories last week, as well as a decline in gasoline and distillate stocks, suggesting a rise in demand.
In the wider financial markets, an upcoming U.S. inflation report set to release on Wednesday will aid investors in determining the near-term trajectory of interest rates.
According to Vandana Hari, founder of oil market analysis provider Vanda Insights, this week’s U.S. data could hinder sentiment if strong numbers reinforce the expectation of the Federal Reserve continuing on its tightening path. Conversely, weak numbers may indicate economic trouble, which would lead to an increase in risk aversion.
Furthermore, monthly reports from the OPEC on Thursday and the International Energy Agency on Friday are due to update oil demand and supply forecasts.
