Crude Oil Rises on Stronger Demand Outlook as Fed Meeting Begins

Oil prices experienced an uptick on Tuesday, supported by an improved demand outlook, although apprehensions regarding a potential hawkish stance from the Federal Reserve during their upcoming meeting tempered the gains.

By 14:30 ET, the futures rose by 0.2%, closing at $77.90 a barrel, while the contract increased by 0.4% to $81.92 a barrel.

### EIA Increases Oil Demand and Production Projections; OPEC Holds Demand Forecast Steady

The Energy Information Administration (EIA) has revised its global oil demand forecast upward by 180,000 barrels per day for 2024, now estimating it at 1.1 million barrels per day (mbpd), and by 80,000 bpd to reach 1.5 million in 2025.

However, this increase in demand is expected to coincide with a rise in domestic output, with projections for 2025 now at 470,000 barrels, up from previous estimates of 530,000 barrels.

The growth in non-OPEC output has posed significant challenges for oil prices, compelling OPEC and its allies to restrict production. Meanwhile, OPEC continues to anticipate a rise in global oil demand of 2.25 million barrels per day in 2024 and 1.85 million bpd in 2025.

### Anticipation Builds Ahead of Fed Meeting and Inflation Data

Crude benchmarks saw notable gains on Monday, spurred by expectations that the summer vacation season in the Northern Hemisphere will drive fuel demand.

This marks a rebound following last week’s significant losses after the OPEC+ meeting hinted at possible supply increases by year-end. Analysts at ING noted that “oil prices moved higher yesterday as the market continued its post-OPEC+ meeting recovery.” They added that this situation creates a considerable deficit in the market for the third quarter, which supports the belief that prices will trend upward.

Nevertheless, traders are cautious about pushing prices higher before the conclusion of the Fed’s latest policy meeting on Wednesday, which coincides with the release of inflation data from the two largest crude-consuming nations.

Should the Fed maintain higher interest rates for an extended period, it could negatively impact future economic activity. Additionally, a deflationary environment may lead businesses and consumers to anticipate lower prices later, resulting in decreased purchases that could dampen economic momentum and reduce oil demand.

### Watchful Eye on Upcoming U.S. Crude Stockpile Data

Traders are also preparing for the latest U.S. crude stockpile estimates from industry sources later in the session. Recent data indicated an unexpected increase in crude inventories by approximately 4.0 million barrels for the week ending May 29, contrasting economists’ expectations of a decrease of 1.9 million barrels.

Meanwhile, gasoline stockpiles grew by 4.03 million barrels, and distillate inventories—encompassing diesel and other fuels—increased by 2.0 million barrels. The official government report on this data is scheduled for release on Wednesday.