Oil Prices Climb on Anticipation of OPEC+ Production Cuts and Peak Summer Demand

Oil prices experienced a boost in Asian trading on Wednesday, fueled by expectations that major producers will maintain existing output cuts at their upcoming meeting and the anticipated rise in fuel consumption during the summer season.

Brent crude futures for July delivery saw a modest increase of 18 cents (0.2%), reaching $84.40 a barrel by 0630 GMT. U.S. West Texas Intermediate futures for July also climbed by 28 cents (0.3%) to $80.11. Both benchmarks had recorded gains exceeding 1% the previous day.

Market participants and analysts anticipate that OPEC+ (Organization of the Petroleum Exporting Countries and its allies, including Russia) will maintain their voluntary production cuts, totaling roughly 2.2 million barrels per day.

This expectation of continued output cuts has instilled optimism in the market. Experts believe that this move will be seen as a collective effort to stabilize prices and restore balance to the global oil market.

The onset of the summer driving season in the U.S., the world’s largest oil consumer, is expected to drive a seasonal increase in consumption. The Memorial Day holiday on Monday marked the beginning of this peak demand period, and maintaining the current production cuts should support prices as demand rises.

Adding to the upward pressure on prices, the escalation of fighting in the Gaza Strip, with Israeli tanks advancing into the heart of Rafah, has raised concerns about a potential widening of the conflict in the Middle East, a key oil-producing region.

Investors are also keeping a close watch on U.S. crude inventory data, which was delayed by a day due to the Memorial Day holiday. Preliminary estimates suggest that U.S. crude oil stockpiles may have decreased by around 1.9 million barrels last week.

The release of U.S. inflation data later this week will also be closely monitored, as it could influence expectations for Federal Reserve interest rate cuts, subsequently impacting oil prices.

The U.S. core Personal Consumption Expenditures Price Index report for April, scheduled for Friday, is the Fed’s preferred inflation measure and is expected to remain stable on a monthly basis.

However, expectations regarding the timing of rate cuts have fluctuated due to policymakers’ concerns about persistent inflation, reflected in recent data.