Despite early proclamations from major oil-producing nations, such as the extension of production cuts by the ‘OPEC+,’ international oil prices continued their third consecutive week of decline. This newest downturn has reignited concerns about the trajectory of global oil prices: will they fall further? And where might the bottom lie in this current slide?
As a crucial resource for the global economy, the price volatility of oil significantly impacts the economic conditions of many countries. Presently, it appears that multiple factors are pushing short-term expectations for slight upward movements in international oil prices. On Monday (June 10), Brent crude futures rose by $2.01, or 2.5%, to settle at $81.63 per barrel; WTI crude futures increased by $2.21, or 2.9%, to settle at $77.74 per barrel, both rebounding to the highest close since May 30.
In Asia’s early trading on Tuesday (June 11), international oil prices exhibited minor fluctuations, retaining most of the previous night’s gains, with Brent crude trading near $81.87 per barrel. On June 2, the Organization of Petroleum Exporting Countries (OPEC) released a statement that eight OPEC and non-OPEC oil-producing nations agreed to extend the current voluntary production cut measures to maintain stability and balance in the international oil market.
Specifically, the eight countries decided to extend the 2.2 million barrels per day voluntary production cuts announced in November 2023 to the end of September 2024 and to gradually withdraw this part of the cut afterward, depending on market conditions. Additionally, the eight countries will extend the 1.65 million barrels per day voluntary production cuts announced in April 2023 to the end of December 2025. The statement further announced the adjusted total crude oil production target of 39.725 million barrels per day for 2025, along with the oil production target for each member for 2025.
However, these announcements did not support the international oil price hike last week; instead, oil prices fell. On Monday (June 3), oil prices ‘faltered’: Brent crude futures plummeted by 3.39% to $78.36 per barrel; WTI crude futures fell by 3.6% to $74.22 per barrel.
Although oil prices rebounded somewhat in the following days, the weekly declines of Brent crude futures and WTI crude futures last week were 2.45% and 1.90%, respectively, continuing their third-week slide. Overall, multiple reasons have been suggested for the continued downward pressure on prices despite ‘OPEC+’ production cuts: firstly, the U.S. raised interest rates substantially in 2022 and 2023 to combat inflation. Higher interest rates increase consumer and business borrowing costs, impeding U.S. economic growth and reducing oil demand.
Secondly, the strong U.S. dollar makes commodities like oil, priced in dollars, more expensive, reducing market demand. Thirdly, despite ‘OPEC+’ production cuts, oil inventories are still rising. Data shows that the U.S. crude oil stockpiles have increased recently, with gasoline stockpiles also showing gains. Despite sustained sluggish performance for several weeks, the short-term outlook anticipates slight price increases; with international oil reserves adequate, significant price surges in the short term are unlikely.
From the perspective of the global economy, stable oil prices will help many countries recover economically. With the summer travel season arriving, market demand for crude oil is expected to rise, potentially pushing up oil prices slightly. Several institutions have already expressed optimistic short-term outlooks for international oil prices. Energy consultancy FGE predicts that oil prices will rebound soon. ‘We still expect the market to turn bullish,’ stated FGE, but it might need tighter inventory data to convince the market.
Besides, as the summer travel peak approaches, the market outlook supported by anticipated demand will push crude oil futures prices higher. Danny, a securities strategist for major commodities, noted that international oil prices would continue to recover from the ‘OPEC+’ production cut declarations. Crude oil ‘seems to be shaking off the bearish sentiment.’ However, as Brent crude prices drop below $80 per barrel, there is hope for future price increases.
While the overall macroeconomic situation remains less optimistic than a few weeks ago, Brent crude is projected to rise to $86 per barrel by Q3; strong summer transportation demand will create a 1.3 million barrels per day supply gap in the market during the third quarter.
In summary, the combination of near-term market dynamics and seasonal demand factors suggests a potential for modest price increases for international oil in the near term.
