Oil prices have seen an upward trend on Thursday, propelled by Saudi Arabia's pledge to reduce production. The potential pause in U.S. interest rate hikes. These positive factors overshadowed apprehensions surrounding weakening demand and a global economic slowdown.
During the recent OPEC+ meeting, Saudi Arabia announced its decision to slash crude output by 1 million barrels per day (bpd) in July. This move supplements a broader agreement aimed at limiting supply. Until 2024 as part of the producer group's efforts to bolster prices.
Price Increase and Market Response:
In response to Saudi Arabia's announcement, Brent crude observed a 0.3% surge, equal to a 25-cent rise, reaching $77.20 per barrel by 1328 GMT. US West Texas Intermediate crude climbed 0.3%, adding 20 cents to settle at $72.73.
Oil broker Tamas Varga, representing PVM, has highlighted the transition of market attention. According to Varga, now that the OPEC+ meeting has concluded, the focus is shifting toward the actions the Fed will take in its upcoming meeting. Varga suggests that the central bank is expected to abstain from increasing interest rates. Such a development could lead to an uplift in oil prices, even before the reduced supply begins to deplete global inventories.
Impact of Monetary Policy:
Economists surveyed that the U.S. Federal Reserve will maintain its current interest rates during its June 13-14 meeting. But, a significant minority predicts the possibility of at least one more increase later this year.
But, the unexpected rate hike by Canada serves as a reminder to investors that the upward trajectory of global interest rates may not be over. This follows the recent tightening of monetary policy by the Australian central bank. The move by Canada underscores the possibility of interest rate adjustments in different regions. They indicated that the era of low-interest rates might be coming to an end.
Factors Influencing Oil Prices:
IG market strategist Yeap Jun Rong acknowledged the recent struggle faced by oil prices. Oil prices have been attempting to recover lately, but it has been a struggle.
The U.S. dollar experienced a slight weakening, rendering oil more affordable for buyers holding other currencies.
While the Saudi Arabia-induced positive sentiment supported a 1% increase in both oil benchmarks. On Wednesday, gains were curtailed by concerns over growing U.S. fuel inventories and weak economic data from China.
Conclusion:
Oil prices have seen an increase driven by Saudi Arabia's commitment to production cuts and the anticipation of a pause in U.S. interest rate hikes. These factors outweighed concerns about weakening demand and a global economic slowdown. The market is now monitoring the Federal Reserve's upcoming meeting to gauge the potential impact on oil prices. Also, developments in global interest rates will continue to play a significant role in shaping the future of oil prices.
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