Oil prices edged higher on Monday, driven by expectations of increased summer demand and ongoing geopolitical tensions, despite the counteracting pressure from a strengthening U.S. dollar. Brent crude futures climbed 22 cents, or 0.3%, to $85.46 a barrel by 10:53 GMT, while U.S. West Texas Intermediate (WTI) crude futures rose 19 cents, or 0.2%, to $80.92 a barrel. Both benchmarks recorded approximately 3% gains last week, marking their second consecutive week of increases.
The oil market has been influenced by a range of factors, including fluctuations in global stocks and currency markets. A softer dollar has made commodities priced in the currency more appealing, providing some support to oil prices. Global stocks steadied ahead of a week filled with political risks and key inflation data, which also contributed to the stability in oil prices.
"We remain supportive toward the oil market with a deficit over the third quarter set to tighten the oil balance," said Warren Patterson, head of commodities strategy at ING Groep NV in Singapore. "Speculators have also become more constructive toward oil as we move into summer."
One of the main drivers behind the recent price strength is the growing confidence that global oil inventories will decline significantly during the summer months in the northern hemisphere. Tamas Varga, an analyst at oil broker PVM, emphasized the seasonal demand for oil products as a key factor supporting prices. Additionally, signs of rising gasoline demand in the U.S. and healthy air travel volumes have bolstered the outlook for oil.
Geopolitical risks have also played a significant role in underpinning oil prices. In Iran, snap elections are scheduled for Friday following the death of Ebrahim Raisi in a helicopter crash last month. The vote comes amid heightened tensions between Iran and the West, with Tehran mobilizing a regional network of proxy militias to target Israel. Meanwhile, the ongoing conflict in Ukraine has seen a ramp-up in Ukrainian drone attacks on Russian refineries, further contributing to the geopolitical uncertainty.
EU countries have agreed on a new package of sanctions against Russia over its war in Ukraine, including a ban on reloading Russian liquefied natural gas (LNG) within the EU for shipment to third countries. These measures add to the geopolitical risks affecting the oil market.
However, the strengthening U.S. dollar has offset some of the support for oil prices. The dollar index, which measures the performance of the greenback against six major currencies, climbed on Friday and continued to rise slightly on Monday after data showed U.S. business activity at a 26-month high in June. "The U.S. dollar appears to have broken higher following better U.S. PMI data on Friday night and political concerns ahead of the French election," noted Tony Sycamore, an analyst at IG.
In Ecuador, state oil company Petroecuador declared force majeure on deliveries of Napo heavy crude for export after the shutdown of a key pipeline and oil wells due to heavy rain. This disruption has added to the supply-side challenges in the global oil market.
Additionally, the number of operating oil rigs in the United States fell by three to 485 last week, the lowest count since January 2022, according to a report by Baker Hughes. This decline in drilling activity indicates potential constraints on future oil supply from the U.S., further supporting prices.
