Macro

Oil Eyes Weekly Gain with WTI at $79, Brent Hits $83 Amid Cuts

Oil prices aim for weekly gain amid OPEC+ cuts and inflation concerns, with eyes on Fed's rate decisions.

By Bill Bullington

5/16, 19:39 EDT
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Key Takeaway

  • Oil prices are set for a weekly gain, with WTI above $79/barrel and Brent near $83, driven by lower stockpiles and easing US inflation.
  • The year-to-date increase in oil prices is moderated by reduced geopolitical risk premiums since April.
  • OPEC+ meeting on June 1 expected to maintain production cuts, influencing future supply dynamics.

OPEC+ Production Cuts in Focus

Oil markets have been closely monitoring the actions of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+. Recent reports indicate that OPEC+ nations have exceeded their quotas in the latest round of output cuts, aiming to prevent a glut and support global prices. This has led to a cautious optimism in the market, with West Texas Intermediate (WTI) crude prices holding steady above $79 a barrel. The anticipation of whether OPEC+ will extend these supply curbs into the second half of the year is a significant factor influencing market sentiment. An OPEC+ meeting on June 1 is widely expected to continue with existing production cuts, with some members of the cartel seeking to have their acknowledged capacity levels upgraded.

US Inflation and Federal Reserve's Rate Decisions

The release of producer and consumer price data in the United States is highly anticipated, as it could provide insights into the trajectory of inflation. These figures are crucial for the Federal Reserve's interest rate decisions, which have a direct impact on market expectations and oil prices. With inflation data on the horizon, there is speculation that the Fed might adjust interest rates, potentially affecting global oil demand forecasts. Recent indicators have surprised to the upside, pushing expectations for rate cuts possibly into 2025. A measure of US inflation cooled for the first time in six months, offering scope for looser monetary policy from the Federal Reserve.

Market Dynamics and Price Movements

The oil market is awaiting several key reports and events that could influence price movements in the near term. Among these are the monthly reports from OPEC and the International Energy Agency (IEA), as well as the U.S. consumer price index for April. Persistent inflation in the U.S. could dampen expectations for Federal Reserve rate cuts. Additionally, geopolitical tensions and changes in trading strategies, such as the notable reduction in net-long positions for Brent and WTI futures, highlight the market's sensitivity to macroeconomic indicators and geopolitical events. Global benchmark Brent topped $83 a barrel after climbing 0.5% on Wednesday, while US benchmark West Texas Intermediate was over $79. US oil inventories fell by 2.5 million barrels last week, taking nationwide holdings to the lowest in almost a month.