Oil Prices Settle Higher on Demand Hopes Ahead of Fresh US Inventory Data

Oil prices experienced an increase on Monday, driven by robust Chinese manufacturing activity data that indicates a recovery in the world’s second-largest economy and a significant crude importer.

At 14:30 ET (18:30 GMT), Brent crude futures rose by 2% to reach $86.41 per barrel, while U.S. West Texas Intermediate crude futures climbed 2.3% to settle at $83.387 per barrel.

Both contracts have enjoyed substantial gains throughout June, fueled by geopolitical tensions in the Middle East and Russia, which raised concerns over potential supply disruptions. This situation led traders to apply a higher risk premium on crude.

The positive sentiment was bolstered on Monday as new data showed that Chinese manufacturing activity outperformed expectations in June, according to private purchasing managers index figures. The index rose to 51.8 in June, surpassing the predicted reading of 51.5 and slightly higher than May’s figure of 51.7.

This encouraging data overshadowed figures released on Sunday, which indicated that China’s manufacturing sector contracted for a second consecutive month in June. A reading below 50 signals a contraction.

Additionally, a decline in the inflation measure preferred by the Federal Reserve contributed to the upbeat mood, as it indicated a slight easing in inflation for May. This development fostered optimism about cooling U.S. inflation and led traders to increase their bets on a 25 basis point rate cut in September, putting downward pressure on the dollar.

A weaker dollar can stimulate oil demand by making the commodity more affordable for international purchasers.

The strong start to the week for oil prices comes just before the release of the weekly petroleum report scheduled for Wednesday. Traders are keenly awaiting indicators of whether summer demand is affecting crude inventories, particularly with an increase in refinery activity.

Moreover, traders are closely monitoring the potential effects of hurricanes on oil and gas production and consumption in the Americas. The Atlantic hurricane season commenced with Hurricane Beryl on Sunday, prompting warnings in Barbados, St Lucia, St Vincent and the Grenadines, and Tobago.

On Friday, the Energy Information Administration noted that oil production and demand for major products reached a four-month high in April, but a significant hurricane in the vital Gulf of Mexico production region could disrupt this trend.