Oil prices climb on summer demand outlook

Oil prices rose on Monday, bolstered by predictions of a supply deficit due to peak summer fuel consumption and OPEC+ production cuts in the third quarter. However, gains were limited by global economic challenges and increasing non-OPEC+ output.

Brent crude futures increased by 33 cents, or 0.4%, to $85.33 a barrel by 0439 GMT, while U.S. West Texas Intermediate crude futures were up 32 cents, or 0.4%, at $81.86 a barrel.

Both contracts saw approximately 6% gains in June, with Brent settling above $85 a barrel in the past two weeks. This followed the Organization of the Petroleum Exporting Countries and their allies (OPEC+) extending most of their significant oil output cuts well into 2025.

This extension led analysts to predict supply deficits in the third quarter as summer transportation and air-conditioning demands deplete fuel stockpiles.

On Friday, the Energy Information Administration (EIA) reported that oil production and demand for major products reached a four-month high in April, supporting prices.

“We continue to hold a supportive view towards Brent, although there are concerns around demand, such as U.S. gasoline demand and Chinese apparent demand,” ING analysts led by Warren Patterson noted.

A private index indicated that factory activity among smaller Chinese manufacturers grew at the fastest pace since 2021 due to overseas orders, despite a broader survey showing weak domestic demand and trade frictions leading to another industrial sector contraction. China is the world’s second-largest consumer and top crude importer.

Expectations of an interest rate cut by the U.S. Federal Reserve and rising geopolitical tensions in Europe and between Israel and Lebanon’s Hezbollah have also helped support prices, according to IG analyst Tony Sycamore.

Sycamore added that WTI’s recent rally might extend towards $85 a barrel if prices remain above the 200-day moving average of $79.52.

Traders are also monitoring the potential impact of hurricanes on oil and gas production and consumption in the Americas. The Atlantic hurricane season began with Hurricane Beryl on Sunday. Beryl, the earliest Category 4 hurricane on record, was heading toward the Caribbean’s Windward Islands, where it is expected to bring life-threatening winds and flash flooding on Monday