Oil Extends Gains As Traders Place Hopes On OPEC Maintaining Course

Meanwhile, Middle East hostilities rekindle analytical concern: File Image/Pixabay

A weaker U.S. dollar and hopes for continued output restraint from the Organization of the Petroleum Exporting Countries (OPEC) were said to be among the reasons why oil on Tuesday extended their gains, in the case of one benchmark by almost 3 percent.

As of 1705 GMT, West Texas Intermediate was up $2.06, or 2.7 percent, at $79.78 per barrel, and Brent rose $1.04, or 1.3 percent, at $84.14.

As has been the case for the past few weeks, expectations for higher-for-longer global interest rates limited gains.

It is widely expected that OPEC will maintain its crude supply curbs of 2.2 million barrels per day (bpd) when it meets on June 2 to discuss the matter, and Tamas Varga, analyst at PVM, said he expects "no changes in production will be forthcoming" because the meeting is virtual.

However, Varga earlier pointed out that "It would probably not be enough to unambiguously brighten the mood, simply because there is nearly 6 million bpd of supply cushion attached to the seemingly oversupplied market."

Michael Hsueh, analyst at Deutsche Bank, agreed that OPEC is unlikely to raise production since Brent is closer to $80 per barrel than $90 per barrel, but he added that pressure will grow on the group after the June meeting to boost output because maintaining a target price for oil significantly above a breakeven price of $75 per barrel for the broad U.S. oil sector is unfeasible.

Crude trading on Tuesday also seemed to be influenced by Middle East tensions, as an attack on a bulk carrier in the Red Sea and Israel's advance into southern Gaza  rekindled the geopolitical risk premium that had been absent last week.

Vishnu Varathan, Asia head of economics and strategy at Mizuho Bank Ltd., said, "the Gaza situation is only a warning not to be aggressively short, but not quite the unbridled bullish trigger."

Despite the escalating hostilities, crude flows from the Middle East, which make up a third of global supply, haven't been affected.

In other oil news on Tuesday, despite long-held fears that the U.S. driving season would reveal withering demand amid rampant inflation, GasBuddy reported that the national average price of gasoline in that country has seen a notable increase reflecting strong demand.

Patrick De Haan, head of petroleum analysis at GasBuddy, said "June tends to be a month of smooth sailing, where we see gas prices decline in most areas, and that's a trend that looks the most likely for drivers, barring unexpected refinery snags or a tropical storm developing.

"The national average over Memorial Day was down ever so slightly compared to last year—after adjusting for inflation, prices were down about 10 cents per gallon; not a terrible way to kick off summer!"