TLDR:
- Oil prices rise as tightening supply, and Chinese stimulus hopes support Brent above $80 per barrel.
- Brent crude futures are up 0.6%, and US West Texas Intermediate has risen 0.5%.
- Supply is expected to tighten after OPEC+ cuts and escalating tensions in Ukraine.
- Citi Research forecasts an average Q3 price of $83 per barrel.
- The market anticipates Fed and ECB rate hikes, but the focus remains on their future guidance.
- Rising rates impact investments and strengthen the US dollar, affecting commodity prices.
- China introduces measures to stimulate private investment, potentially boosting oil demand.
Oil prices saw an uptick on Monday as tightening supply and prospects of Chinese stimulus drove Brent crude above $80 a barrel, despite expectations of further rate hikes from U.S. and European central banks.
Brent crude futures climbed 44 cents, or 0.6%, reaching $81.51 a barrel by 11 GMT, while U.S. West Texas Intermediate (WTI) crude rose to $77.51 a barrel, also up 44 cents, or 0.5%.
Last week marked the fourth consecutive week of gains, with the benchmarks rising 1.5% and 2.2%, respectively. The anticipated tightening of supply comes after OPEC+ cuts, and tensions escalated in Ukraine as Russia withdrew from a U.N.-brokered agreement for safe sea corridor access for grain exports.
Citi Research noted that the rise in oil prices reflects “tightening conditions as Saudi oil output cuts impact the market … even as summer demand has been somewhat stronger for gasoline and jet fuel.” The bank further predicts an average oil price of $83 per barrel for the third quarter.
National Australian Bank analysts also see the potential for oil prices to rise in the coming months, stating, “While another Fed rate hike this week may drive some short-term price volatility, we expect tightening market conditions on OPEC’s supply cuts and increasing market speculation of further stimulus in China to continue to push prices higher through 3Q23.”
Investors are closely watching the Federal Reserve and European Central Bank for expected quarter-point hikes this week. The remarks made by Fed Chair Jerome Powell and ECB President Christine Lagarde on future rate hikes will be crucial for market sentiment.
Rising interest rates have led to reduced investments and a stronger U.S. dollar, making dollar-denominated commodities more expensive for holders of other currencies.
In China, the state planner unveiled measures to stimulate private investment in specific infrastructure sectors and announced plans to enhance financing support for private projects. This move is anticipated to boost oil demand in the world’s second-largest consumer of oil.
