Oil prices experienced a significant 2% surge, reaching a 10-week high on Tuesday. This upswing was primarily driven by multiple factors, including a declining U.S. dollar, optimistic expectations of increased demand in emerging economies, and supply reductions by major global oil exporters.
By 11:30 a.m. EDT (15:30 GMT), Brent futures saw a rise of $1.51 or 1.9%, reaching $79.20 per barrel. Similarly, U.S. West Texas Intermediate (WTI) crude witnessed a gain of $1.61 or 2.2%, reaching $74.60 per barrel.
These price levels put both Brent and WTI on track to achieve their highest closing figures since May 1. Notably, Brent entered technically overbought territory for the second time in three days.
A contributing factor to the surge was the weakening of the U.S. dollar, which hit a two-month low against a basket of other currencies. This decline followed signals from U.S. Federal Reserve officials indicating that the central bank was nearing the end of its tightening cycle. A weaker dollar renders crude oil more affordable for holders of alternative currencies.
According to Edward Moya, an analyst from OANDA, “Oil has established a stable foundation, and the only potential disruptor would be if U.S. inflation surges and compels the Fed to tighten the economy, possibly leading to a recession.”
Market participants eagerly awaited U.S. inflation data, set to be released on Wednesday, as it would provide insights into the future interest rate landscape. Higher interest rates have the potential to impede economic growth and reduce oil demand.
The International Energy Agency (IEA) anticipates that the oil market will remain tight during the second half of 2023. The agency cites robust demand from China and other developing nations, coupled with recent supply cuts announced by major exporters such as Saudi Arabia and Russia. The IEA is expected to publish updated forecasts later this week.
China, the largest oil purchaser globally, has once again reduced its supply request from Saudi Aramco (SE:2222), the leading oil exporter, according to multiple sources cited by Reuters.
During a Nigerian oil and gas conference, the Secretary-General of the Organization of the Petroleum Exporting Countries (OPEC) projected a 23% increase in global energy demand by the end of 2045.
On Tuesday, the U.S. Energy Information Administration (EIA) was scheduled to release its Short-Term Energy Outlook, while the market awaited U.S. oil inventory data from the American Petroleum Institute (API), an industry group, on Tuesday, and the EIA’s report on Wednesday.
Analysts participating in a Reuters poll predicted that U.S. energy firms would add approximately 0.2 million barrels of crude to storage during the week ending on July 7. If confirmed, this would mark the first increase in crude stockpiles in four weeks.
In comparison, during the same week last year, stockpiles rose by 3.3 million barrels, while the five-year average (2018-2022) witnessed a decrease of 6.9 million barrels.
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