The oil market kicked off the week with a strong rebound. Both Brent and WTI crude prices rose significantly, recovering much of last week's losses from Thursday and Friday. This upward movement followed a liquidity sweep below several May lows – a typical technical trigger – but behind the bounce lie key fundamental factors that traders shouldn't overlook. So, what’s driving the momentum?
A cautious compromise from OPEC+
On Saturday, just one day before prices jumped, OPEC+ announced its decision to increase production by 411,000 barrels per day in July, continuing at the same pace as May and June. While this move may seem modest, especially in light of market expectations for a more aggressive hike, it was exactly this measured approach that was well received by the market. On Monday, Brent crude futures rose 2.33% to $64.24 per barrel, while WTI climbed 2.73% to $62.45.
According to Harry Tchilinguirian of Onyx Capital Group, a larger production boost could have rattled market stability and led to a volatile start to the week. This cautious strategy also serves as a message to member countries like Iraq and Kazakhstan, which have previously overproduced. OPEC+ is signaling its intent to stabilize prices while reinforcing internal discipline.
U.S. dynamics
Across the Atlantic, the U.S. oil market is navigating its own set of dynamics. Gasoline demand surged by nearly 1 million barrels per day, marking the third-largest weekly increase in three years. With the hurricane season approaching, concerns about potential supply disruptions are adding to the bullish outlook, particularly given low fuel inventories and robust demand.
Meanwhile, the supply side paints a contrasting picture. Although U.S. oil production hit a record 13.49 million barrels per day in March, the number of active oil rigs has been declining for five consecutive weeks, now down to 461 – the lowest level since November 2021. This suggests that U.S. producers remain cautious, focusing more on operational efficiency than expansion, despite elevated price levels.
Outlook: A summer of tension and opportunity
According to Goldman Sachs, OPEC+ is expected to increase output again in August by another 410,000 barrels per day. This move is likely supported by tight global supply, increased economic activity, and seasonally high summer demand. Add to that the potential for supply shocks, whether geopolitical or weather-related, and oil prices may remain elevated throughout the summer.
What does this mean for traders?
For traders, current developments mark a renewed opportunity in the commodities market. The combination of technical setups, solid fundamentals, and seasonal trends creates a favorable environment for those looking to diversify. When the macroeconomic context and technical analysis align, the odds shift in the trader's favor, and oil is once again proving to be a key asset to watch.
