Oil Prices Surge 2% to Two-Month High Amid Summer Demand Hopes and Supply Concerns, According to Reuters

Oil Prices Rise on Supply Concerns and Demand Hopes

Oil prices increased by approximately 2% to reach a two-month high on Monday, driven by expectations of higher demand during the Northern Hemisphere’s summer driving season, as well as concerns about potential escalation of conflict in the Middle East that could impact global oil supplies.

Brent crude futures saw an uptick of $1.60, or 1.9%, settling at $86.60 per barrel, while U.S. West Texas Intermediate (WTI) crude rose by $1.84, or 2.3%, closing at $83.38. This marked the highest closing price for Brent since April 30 and for WTI since April 26.

Analysts from an energy advisory firm noted that the energy market was starting the week with strength, buoyed by increasing geopolitical risks related to tensions between Israel and Hezbollah, as well as optimistic demand expectations and concerns about potential hurricanes affecting supply.

Since the onset of the Gaza conflict, Israel and Hezbollah have engaged in crossfire, raising fears of a broader war that could involve Iran and its allied factions in Iraq, Yemen, and Syria.

OPEC, which includes major oil-producing nations, has extended its output cuts into 2025, a move that is leading analysts to predict supply shortages this third quarter due to rising transportation fuel demand and increased air-conditioning usage during summer months.

Demand growth contributed to a nearly 3% increase in U.S. oil product prices on Monday, with diesel futures closing at their highest level in ten weeks and gasoline futures at an eight-week high.

In the Caribbean, Hurricane Beryl, classified as a major hurricane, is projected to pass near Jamaica on Wednesday and impact Mexico’s Yucatan Peninsula on Friday before weakening and moving into the Gulf of Mexico, where a significant portion of Mexico’s oil production occurs.

Economic Outlook and Inflation

This week, markets also received data indicating that U.S. manufacturing contracted for the third consecutive month in June, with subdued demand. A recent decline in factory input prices to a six-month low suggests that inflation might continue to ease.

Investors are focused on potential U.S. Federal Reserve interest rate cuts, awaiting comments from Fed Chair Jerome Powell on Tuesday, followed by minutes from the latest policy meeting on Wednesday and unemployment data on Friday.

The Fed’s aggressive interest rate hikes in 2022 and 2023 aimed at curbing inflation have led to increased borrowing costs for consumers and businesses, potentially dampening economic growth and reducing oil demand.

Analysts noted that hopes for Fed interest rate cuts, combined with rising political tensions in Europe and conflicts involving Israel and Hezbollah, are helping to maintain support for oil prices. In France, opposition parties are forming a united front against the far-right National Rally, which has made significant gains in recent elections.