Oil is Waiting for OPEC+

Brent crude oil benchmark added 1.3% to $83.30 per barrel this week. Prices retreated after climbing by 3.3% to $85.04, a three-week high. Despite positive news in the market, prices appear unable to break through the resistance at $85.00.

According to the American Petroleum Institute (API), weekly crude oil stock declined by 6.49 million barrels, far above the consensus of 1.9 million. The start of the driving season in the United States has boosted fuel demand, which is typically a positive factor for crude prices. However, the market did not fully consider this factor, resulting in Brent prices rolling back to $83.00 per barrel.

This price movement contradicts investors' generally bullish stance on oil prices. The United States Oil Fund (USO) reported net fund inflows of $112.9 million this week, following a negative week and a neutral mid-May. These developments support a bullish scenario, with Brent prices potentially rising to $90.00 per barrel.

On the negative side, U.S. debt market yields jumped after a weak debt auction on May 29, where investors demanded higher yields, settled at 4.65% for the U.S. 7-year bills. Ten-year debt yields rose to 4.63%, nearing November 2023 highs of 4.65%. Investors fear that large borrowing by the U.S. Treasury could prevent the Federal Reserve (Fed) from cutting interest rates. Bets on interest rate cuts by the Fed in September fell to 40.0% from 46.4% at the start of the week.

S&P 500 index futures lost around 1.0% to 5235 points at the opening on Thursday, but recovered most of their losses by the afternoon. The U.S. Dollar index (DXY) rose by 0.4% to 105.13 on Wednesday, with EURUSD falling to 1.0815, down by 0.4% on Wednesday and Thursday. This likely put additional pressure on oil prices.

Traders are considering how long the Fed might delay its interest rate cut decision. April PCE index data, expected on Friday, may influence investor sentiment. Additionally, the upcoming meeting of the Organization of Petroleum Exporting Countries and its allies (OPEC+) this weekend is highly anticipated. OPEC+ may extend its oil production cuts for the rest of 2024, which would further support oil prices. In this context, Brent oil prices may resume climbing towards $90.00 per barrel. Alternatively, prices could tumble below $80.00 per barrel and continue downward.