(Bloomberg) — Oil headed higher after a weekly decline as the market was still digesting OPEC+’s decision to restore supply and traders look ahead to a series of sector reports and a Federal Reserve decision on interest rates.
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Brent was trading around $80 a barrel after losing 2.5% last week as algorithmic trading amplified declines following the alliance’s announcement that it would begin returning more supply from the third quarter. West Texas Intermediate was almost $76.
Traders will look forward to monthly reports from OPEC and the International Energy Agency, due Tuesday and Wednesday, which will shed light on the health of the sector. The Fed will also announce its decision on interest rates mid-week. Strong economic data and persistently high inflation have fueled market expectations that the Fed is nearing its long-awaited pivot to lower borrowing costs.
“Investors who overreacted to last week’s OPEC announcement are trying to wrap their heads around the possibility that no additional barrels will eventually enter global inventories,” said Priyanka Sachdeva, senior market analyst at brokerage Phillip Nova Pte. Yet the macroeconomic outlook is still at the forefront of traders’ minds, with growing concerns that Fed rates will remain high, she said.
After OPEC+’s announcement about reversing production cuts sent prices tumbling, officials insisted the supply increase had always been provisional and could be suspended.
Crude oil has been falling since early April on the weakening demand outlook, with money managers cutting net long positions on Brent by the highest level ever in data going back to 2011, leaving positions at their least bullish in a decade. Net long positions for the US benchmark WTI also fell.
However, there are also strengths in some product markets, including jet fuel, where a recovery in air travel to pre-Covid-19 levels is driving a revival.
Geopolitics remained central. Tensions in the Middle East simmered after Israel released four hostages during an operation in Gaza, part of an attack that killed more than 200 Palestinians, the Hamas-run government media agency said. And in Europe, far-right parties gained ground in the European Parliament elections.
Trading volumes are likely to be limited during Asian hours, with a holiday in mainland China and Hong Kong.
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