Oil prices surged by nearly 3% on Monday, boosted by the easing of U.S. recession fears and the belief among some traders that crude’s recent price slide was overdone. This comes after three straight weeks of decline, which was the first such occurrence since November. A healthy U.S. jobs report for April also contributed to oil’s rise, climbing by approximately 4% on Friday. Despite labor market strength, which could compel the Federal Reserve to keep interest rates higher for longer, oil prices continued to climb. Brent crude saw a rise of $2.05, or 2.7%, at $77.35 a barrel by 1330 GMT, while U.S. West Texas Intermediate (WTI) crude gained $2.05, or 2.9%, to $73.39.
According to CMC Markets analyst Tina Teng, “Oil’s rebound follows energy stocks’ comeback on Wall Street last Friday after the U.S. reported strong job data, which eased concerns about an imminent economic recession.” Brent crude finished last week with a decline of around 5.3%, while U.S. crude plunged by 7.1%, even after Friday’s rebound. For the first time since November, both benchmarks were down for three weeks in a row.
Ole Hansen, head of commodity strategy at Saxo Bank, stated that oil’s recent drop appeared excessive. “An oversold market condition combined with Brent managing to find support ahead of the March low forced recently established short sellers to seek cover, potentially highlighting that the recent sell-off was overdone,” he said. Meanwhile, Goldman Sachs analysts on Saturday said that concerns over near-term demand and elevated supplies were “overblown.”
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A round of voluntary output cuts by some members of the Organization of the Petroleum Exporting Countries (OPEC) and allies, known as OPEC+, begins this month, and the group holds its next meeting on June 4. U.S. consumer price inflation figures for April will also be in focus on Wednesday, potentially influencing the Fed’s stance on future interest rate decisions. Additionally, OPEC’s latest monthly oil market report is due on Thursday, providing an updated reading on the demand and supply outlook.
The oil market outlook is generally optimistic as oil prices continue to recover. However, this may be short-lived, given the risk of a potential economic recession. The U.S. is still in a trade war with China, and there is uncertainty surrounding Brexit, both of which could adversely affect the oil market. In addition, supply factors such as an increase in U.S. shale oil production and a possible lifting of sanctions on Iran could also affect oil prices.
Despite these potential risks, oil prices are expected to continue to rise, driven by a combination of strong demand from emerging markets, production cuts by OPEC, and a weaker dollar. While short-term price fluctuations are common in the oil market, long-term demand for oil is expected to remain strong due to a growing global population and increasing industrialization in emerging markets.
Investors in the oil market should keep an eye on upcoming events that could impact the market, such as OPEC’s meeting in June and U.S. inflation figures on Wednesday. With the global economy remaining uncertain, it is essential to remain vigilant and informed about the latest developments in the oil market.