Oil rises over $1 after US dollar weakens to 1-week low, OPEC+ likely to hold supply cuts; Brent hits $84/bbl

Crude oil prices rose by more than $1 per barrel on Tuesday, May 28, on the expectations that the Organization of the Petroleum Exporting Countries and allies (OPEC+) will maintain the current crude supply curbs, while a weaker US dollar made the commodity more attractive to holders of other currencies.

The July contract for global benchmark Brent crude rose $1.04, or 1.3 per cent, to $84.14 a barrel. US West Texas Intermediate crude (WTI) was at $79.78, up $2.06, or 2.7 per cent, from Friday’s close, having traded through Monday’s US mark Memorial Day holiday without a settlement, according to Reuters.

Oil extended a more than one per cent rise in trade on Monday that was muted due to the holiday, with hopes of a demand boost from the launch of the US summer driving and vacation season. Coming to domestic prices, crude oil futures last traded 1.41 per cent higher at ₹6,639 per barrel on the multi-commodity exchange (MCX).

What’s driving crude oil prices?

-OPEC+ members will decide its next output supply policy on June 2 in a virtual meeting. Traders and analysts are predicting 2.2 million barrels per day of voluntary production cuts to stay in place. “We expect OPEC+ to extend the current cut for at least another three months at its upcoming meeting,” UBS analysts said in a note.

-Analysts said that this week’s upside follow-through is being facilitated by a significant weakening in the dollar and a growing consensus that OPEC+ will extend the production cuts at the upcoming weekend meeting.

-The US dollar slipped 0.1 per cent to a more than one-week low. Worries over US interest rates remaining elevated for a longer period contributed to a weekly loss for crude last week. Higher rates boost the cost of borrowing, which can dampen economic activity and demand for oil.

-Investors will watch the US core personal consumption expenditures price index (PCE), which is a main inflation gauge for the Federal Reserve, due on Friday. Despite the rise in prices in the last two session, analysts noted that the interest rate concerns will most plausibly act as a brake on further attempts to send oil prices meaningfully higher in the immediate future.

-Air travel data also helped to buoy oil prices, with US seat numbers on domestic flights for May rise by five per cent month on month and almost six per cent year on year to slightly above 90 million, data from flight analytics company OAG showed, surpassing 2019 levels.