Oil Prices Pull Back from Two-Month Highs, Settling Lower Amid Summer Demand Hopes

Oil prices experienced a decline on Tuesday after reaching two-month highs, despite anticipation of increased demand during the upcoming Independence Day holiday and potential supply risks stemming from geopolitical tensions and weather-related disruptions.

As of 14:30 ET, crude oil dropped 0.4% to $86.24 a barrel, while Brent crude fell 0.7% to $82.81 a barrel. Both benchmarks had previously surged approximately 2% in the prior session, hitting their highest points since late April.

### Increased Travel Expected for Independence Day

The recent upward trend in crude oil prices was largely influenced by expectations of rising fuel demand in the U.S. as summer travel season begins. The American Automobile Association (AAA) projects that a record number of travelers will take to the roads this week due to the Independence Day holiday. They stated, “We anticipate this July 4th week will be the busiest ever with an additional 5.7 million people traveling compared to 2019.”

While increased summer travel typically signifies heightened fuel demand, recent sustained increases in U.S. fuel inventories have raised questions about how significant this demand will be.

### Concerns Over Supply Risks

Recent support for crude prices has stemmed from heightened worries about potential conflict in the Middle East, particularly as tensions between Israel and Hezbollah remain unresolved. Traders have assigned a higher risk premium to crude oil prices, anticipating that a larger conflict could disrupt supplies from the region. Additionally, ongoing clashes between Russia and Ukraine, with Ukraine targeting Moscow’s oil infrastructure, have added to concerns.

Another factor influencing supply is Hurricane Beryl in the Caribbean, which poses a threat to offshore oil production as it heads toward Mexico. The potential for supply disruptions, coupled with the Organization of Petroleum Exporting Countries’ decision to maintain current production cuts, is expected to tighten crude oil markets as 2024 progresses.

### Upcoming API Stockpile Data

Attention is also focused on upcoming data regarding U.S. crude stockpiles from the American Petroleum Institute. Analysts anticipate a slight decrease in inventories, indicating increased demand; however, last week’s report saw a significant inventory build. This data precedes the Energy Information Administration’s petroleum report expected to be released on Wednesday.

Analysts at Macquarie predict overall declines in product inventories this week, with distillate stocks leading the way down with an expected reduction of 2.3 million barrels, followed by a 1.2 million barrel drop in gasoline stocks.