More data needs to come in to confirm that major economies are indeed on the rebound before there’s any sustained rally in crude oil prices, analysts said, while this week could bring novel developments regarding Iranian barrels.
“No one gets everything they want in a negotiation, but make no mistake: This bipartisan agreement is a big win for our economy and the American people,” Biden said late Thursday.
The agreement was met with a collective sigh of relief, and helped oil prices claw back from steep losses triggered by uncertainty at the start of the week. West Texas Intermediate, the U.S. benchmark, struggled to post a net gain on the week, but managed to finish trading Friday back in the low $70 range.
What drives the price of oil starting Monday is this past weekend’s meeting of OPEC+, the core members of the Organization of the Petroleum Exporting Countries and nonmember state allies such as Russia.
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The group in May implemented a pledged production cut in a tacit effort to prop up oil prices, but a rally quickly fizzled out amid concerns about runaway inflation and a potential recession in the world’s major economies.
Saudi Arabia and Russia, the two main kingpins in OPEC+, were at loggerheads over production policies before the weekend meeting. The bickering could undermine confidence in what would normally be seen as the oil market’s central bank.
Paul Hickin, editor-in-chief at London-based Petroleum Economist, said that even with further OPEC+ restraint the market remains under pressure from lackluster growth in the U.S. and Chinese economies and that it would be difficult for the group to change the narrative.
“The market still needs convincing that demand will outpace supply for oil prices to move significantly higher and the global economic outlook is so far unsupportive even if OPEC+ has tried its best to rein in output,” he said.
On the outlook, European Central Bank President Christine Lagarde warned that “inflation is too high and it is set to remain so for too long,” while in the U.S., a resilient labor market suggests that the Federal Reserve has more work to do as hiring tends to boost demand and support further inflation.
Ole Hanson, the head of commodities strategy at Saxo Bank in Denmark, said that, despite OPEC+ decisions, the price of oil remains under the influence of global growth and demand outlooks. The U.S. economy remains on edge and China has yet to post the strong rebound that was expected when it lifted COVID-19 restrictions early this year.
“Until key questions are answered, such as the short-term direction of the Chinese economy, recession risks elsewhere and the direction of U.S. interest rates, the market is likely to remain subdued, despite a continued outlook for an emerging supply deficit during the second half of the year,” he said.
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A gauge of Chinese business trends in the private sector is out Monday, followed by inflationary data to May late in the week. Mortgage applications in the U.S. economy and GDP in the European Union are other factors to watch this week.
Elsewhere, Jeff Mower, the oil news director for the Americas at S&P Global Commodity Insights, said the market focus for him is an upcoming meeting of the International Atomic Energy Agency, the nuclear watchdog for the United Nations.
The agency last week said it resolved some outstanding questions over Iran’s nuclear program, easing some of the concern over Tehran’s ambitions. Iran, one of the leading producers inside OPEC, has long been under sanctions pressure and it’s possible the IAEA’s findings could bring some relief that would put Iranian barrels back on the market.
“Some market watchers expect that a deal between the U.S. and Iran could be in the works, following reports that the IAEA made some progress on some of Iran’s nonproliferation issues,” Mower said. “However, those reports stemmed from Iranian media and were taken with a grain of salt.”
It’s unlikely that a deal on oil sanctions will materialize soon, but Mower said market watchers think relief remains possible. Iran’s return would be decidedly bearish for crude oil prices.
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