Oil Prices Retreat but Stay Elevated Amid Demand Hopes and Geopolitical Tensions

Oil prices experienced a decline on Tuesday, reversing some of the significant gains seen in recent days due to optimism about increased demand during the summer months.

As of 08:25 ET, oil prices fell by 0.5%, settling at $84.77 per barrel, while Brent crude also dropped 0.5% to $81.20 per barrel.

Markets Anticipate Summer Demand Surge

Traders appeared to be taking profits on Tuesday, as prices approached levels not seen since early May. Recent sessions have shown an upward trend in oil prices, driven by expectations for improved demand as travel activity increases during the summer season. This sentiment was reinforced by recent data indicating an unexpected drop in U.S. oil inventories, particularly in gasoline supplies.

Later today, new U.S. inventory data will be released, with industry analysts forecasting a decrease of about 3 million barrels in oil stockpiles for the week ending June 21. It is also expected that gasoline inventories will have declined, while distillate stockpiles are projected to rise.

Geopolitical Tensions Affecting Supply

Ongoing geopolitical tensions, particularly in the Middle East and between Russia and Ukraine, have also heightened concerns about potential supply disruptions. In Israel, air strikes on Gaza are continuing, alongside an intensifying ground assault on Rafah, with the likelihood of a ceasefire with Hamas appearing remote. Additionally, there are fears of escalating conflict involving Hezbollah.

In Ukraine, reports indicate that over 30 Russian oil refineries have been damaged as the nation targets key oil production facilities within Russia.

Concerns About the U.S. Economy

Despite the positive outlook for demand, worries about the strength of the U.S. economy—home to the world’s largest oil consumption—persist, especially in light of high interest rates and persistent inflation. This week, attention turns to critical economic data, particularly the Federal Reserve’s preferred inflation measure, for insights into potential interest rate adjustments later this year.

Globally, economic conditions in Europe are deteriorating, suggesting weakening demand in that region. Meanwhile, uncertainties regarding economic recovery in China remain, as traders look for more stimulus measures from the world’s largest oil importer.