Oil Prices Rise: Summer Demand and OPEC+ Meeting | IFCM Indonesia
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Oil Prices Rise: Summer Demand and OPEC+ Meeting

Oil Prices Rise: Summer Demand and OPEC+ Meeting

Oil prices in Asia increased on Tuesday, building on gains from the previous session. This upward trend is driven by the anticipation of robust summer fuel demand in the United States and in anticipation of a crucial meeting by the Organization of the Petroleum Exporting Countries and its allies (OPEC+).

  • Brent crude for July delivery increased 6 cents to $83.16 a barrel.
  • U.S. West Texas Intermediate (WTI) crude futures for July were up $1.08, or 1.39%, at $78.80 a barrel.
  • The OPEC+ group is expected to maintain production cuts at their upcoming meeting on June 2nd, potentially leading to higher prices.


Factors Affecting Oil Prices

  • Expectation of strong summer demand
    The upcoming summer driving season in the US is expected to boost demand for fuel, putting upward pressure on prices.
  • Healthy demand
    Real-time data on mobility suggests that oil demand growth remains positive despite concerns about rising interest rates potentially dampening economic activity.
  • Increased air travel
    Data shows a rise in both domestic and international flight bookings compared to 2019 levels, indicating a pick-up in travel and consequently, oil demand.
  • China's stimulus measures
    The recent establishment of a $47.5 billion state-backed investment fund by China to support its semiconductor industry is seen as a positive sign for oil demand growth as the industry relies heavily on oil-based products.


OPEC Expects Strong Oil Demand Growth

OPEC is projecting healthy growth in global oil demand for 2024 and 2025, despite some economic uncertainties. It is based on a resilient global economy so far in 2024, with the potential for further improvement in the second half.


Key points of OPEC's optimistic forecast for global oil demand

  • OPEC forecasts oil demand to increase by 2.2 million barrels per day (mb/d) in 2024, reaching a total of 104.5 mb/d on average.
  • For 2025, they predict a further increase of 1.8 mb/d, reaching an average of 106.3 mb/d.
  • This optimism comes despite some market concerns about slowing demand and potential interest rate hikes that could discourage oil consumption.
  • OPEC cites strong air travel, healthy road transportation activity, and industrial growth, particularly in non-OECD countries, as drivers for the demand increase.


In Conclusion

Several factors are converging to push oil prices higher. The expectation of a busy summer driving season in the US, coupled with healthy global oil demand, increased air travel, and China's stimulus measures, are creating a positive outlook for oil consumption. Additionally, OPEC's forecast of strong demand growth in 2024 and 2025, fueled by robust economic activity, air travel, and industrial development, is underpinning this potential rise. With the OPEC+ meeting on June 2nd likely to maintain production cuts, the stage seems set for a continued rise in oil prices.

Note:the possibility of higher interest rates to combat inflation could still dampen economic activity and ultimately reduce oil demand.

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Publish date
28/05/24
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