Oil prices held onto their biggest gain since March as investors awaited a report from OPEC that will provide insight into the market outlook. Brent crude traded near $82 a barrel, following a 2.5% surge on Monday, while West Texas Intermediate remained below $78. In addition to the OPEC report, the market will also be looking out for the US Short-Term Energy Outlook on Tuesday and the monthly release from the International Energy Agency on Wednesday.
The rally in crude prices on Monday was fueled by traders “buying the dip” after the largest weekly loss since May, which came after OPEC+ announced plans to increase supply. The sell-off prompted the group to clarify that it could adjust production changes if necessary.
Since early April, oil prices have been on a downward trend due to concerns about demand and an increase in supply from countries outside of the Organization of the Petroleum Exporting Countries. Despite making the deepest cuts in over a year, Russia’s output last month remained above the level it had pledged to OPEC+.
Despite recent fluctuations, timespreads in the oil market are suggesting a certain level of strength. The three-month spread for Brent crude is currently at $1.42 a barrel in backwardation, meaning later contracts are trading at a discount to prompt ones. This is an improvement compared to under a dollar a week ago and indicates tight supply, which is a bullish signal.
In addition to monitoring the oil market, traders are also paying close attention to the upcoming Federal Reserve interest-rate decision, scheduled for Wednesday. The strong US economy and persistent inflation have led investors to reduce their expectations that the central bank will change its course anytime soon. As a result, the strengthening dollar has put additional pressure on prices.
According to Yeap Jun Rong, a market strategist with IG Asia Pte, traders are not solely relying on the Fed’s “higher-for-longer” interest rate narrative. Instead, they are hoping for some positive developments in summer demand to drive market sentiment.
