Global oil prices steadied on Tuesday as the prospect of OPEC+ maintaining oil supply curbs at its June 2 meeting and hopes of strong U.S. summer fuel demand balanced concern about higher-for-longer U.S. interest rates. On Monday, oil rose over 1% in muted trade owing to public holidays in Britain and the United States, as hopes of strong fuel demand with the start of the U.S. summer driving and vacation season providing support.
The July contract for Brent, the global benchmark, rose 17 cents or 0.2% to $83.27 a barrel by 0810 GMT. U.S. West Texas Intermediate (WTI) crude was at $78.79, up $1.07 or 1.4%, from Friday's close, having traded through a U.S. holiday to mark Memorial Day without a settlement. "Despite the indisputably brighter mood seen in the last two days, interest rate concerns will most plausibly act as a (brake) on further attempts to send oil prices meaningfully higher in the immediate future," said Tamas Varga of broker PVM.
"It is a fair assumption that no changes in production levels will be forthcoming," he added regarding the OPEC+ meeting. Worries over U.S. interest rates remaining elevated for a longer period helped send crude into a weekly loss last week. Higher rates boost the cost of borrowing, which can dampen economic activity and demand for oil. Nonetheless, despite the general view that high interest rates could result in softer oil demand growth, "real-time mobility data indicates oil demand growth is still broadly healthy," UBS analyst Giovanni Staunovo wrote in a client note.
On the air travel front, U.S. seat numbers on domestic flights for May rose by 5% month on month and almost 6% year on year to slightly above 90 million, data from flight analytics firm OAG showed, surpassing 2019 levels. Coming up is the online meeting of OPEC+ producers on Sunday, where traders and analysts are expecting 2.2 million barrels per day of voluntary production cuts to stay in place and buoy prices further.
"We expect oil prices to move higher in the coming days," said Satoru Yoshida, a commodity analyst with Rakuten Securities, who cited anticipated continued voluntary output cuts by producers. The beginning of the U.S. driving season will also provide support, Yoshida added.
