The surge in global oil prices is currently driven by three main factors: supply and demand dynamics, central bank policies, and geopolitical concerns. These factors are expected to continue impacting the energy market as the US presidential election approaches. Analysts advise energy investors to stay informed about new events and their potential impact.
OPEC and its allies imposed voluntary restrictions on oil production, leading to the stabilization of oil markets. Since the third quarter of 2023, oil production has been reduced by 2.2 million barrels per day to prevent it from exceeding global demand levels. As the virtual OPEC meeting on June 2 approaches, market observers anticipate the continuation of this voluntary production cut.
Contrary to initial projections, global crude oil demand did not increase as anticipated in 2024. Supply constraints, slow economic recovery, and the effects of COVID-19 have contributed to a balance. Experts point out that global oil production may surpass economies’ ability to consume it, thereby driving oil prices higher, emphasizing the critical relationship between supply and demand.
Cautions persist regarding crude oil production in the United States. Any continued surplus in supply compared to demand could impact prices. Additionally, the onset of the US summer driving season is expected to boost oil demand as travel and holidays lead more people to the roads.
Changes in crude oil prices are significantly influenced by interest rate dynamics. Historical trends show an inverse relationship between oil prices and interest rates. Higher interest rates can reduce economic growth and demand, leading to lower oil prices, while lower interest rates can stimulate economic expansion, increasing oil demand and pushing prices up.
Furthermore, the weakening of the US dollar makes oil relatively more affordable for buyers using other currencies, consequently increasing demand and elevating prices. Conversely, a stronger dollar could exert pressure on oil prices.
Traders and analysts anticipate the extension of the current oil production cut during the upcoming OPEC+ Group virtual meeting, aiming to support prices without hindering economic recovery. Brent crude prices are expected to be maintained within the range of $80 to $90.
Geopolitical tensions, such as recent missile attacks and border expansion plans, have raised concerns about crude oil supplies. Any disruptions in oil production or transportation due to geopolitical tensions could result in higher prices.
The US Federal Reserve's decision not to cut rates in early 2024 has bolstered crude oil demand, pushing prices higher. Additionally, the rising US Dollar Index and positive US PMI data for May indicate continued economic growth, further contributing to the rise in oil prices.
Geopolitical tensions introduce uncertainty, impacting investment decisions and overall economic stability, particularly in the Middle East, a significant oil source. Higher oil prices directly affect consumers through increased fuel costs, influencing household budgets.
