Monthly market reports from OPEC, EIA and IEA could result in a volatile week for crude oil prices, but the focus will be on indicators of global demand, analysts said.
A week of trading shortened by the long Memorial Day holiday weekend did not influence the continued rally in crude oil prices. West Texas Intermediate, the US benchmark for oil prices, ended the week up 4.6% to finish trading at $ 69.62 per barrel on Friday, its highest level since October 2018.
The rally was supported on several fronts, with US economic data motivating the bulls. The Labor Department reported on Friday that the payroll rose by 559,000 last month, less than expected but significantly higher than the 278,000 added in April. WTI rose 1.2% on news
Lefteris Karagiannopoulos, head of media relations at Norwegian consultancy group Rystad Energy, said employment figures as well as road traffic deserved to be watched in the coming weeks. The data, he said, shows that the roads are very busy, leading to an increase in demand for road fuels and ultimately supporting the price of oil.
The US Energy Information Administration showed last week that commercial crude oil inventories fell 5.1 million barrels, but motor gasoline inventories rose 1.5 million barrels. With American travelers looking to break free after a year of quarantine, the increase in gasoline stocks has been a disappointment, however.
“The increase in stocks of US products last week and the decline in domestic consumption troubled me,” said Tamas Varga, analyst at London-based oil broker PVM. “I’ll be interested to see this week whether this was just a one-time event or if expectations of a recovery in demand are overblown.”
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In addition to its regular collection of data on stocks of petroleum and petroleum products, the EIA releases its monthly market report on Tuesday, followed by the Organization of the Petroleum Exporting Countries on Thursday and the International Energy Agency on Friday. All three reports will provide demand growth forecasts for the second half of the year.
“It will be crucial to keep global demand forecasts stable for the second half of the year,” Varga added. “This would imply that faith in the economic recovery is unbroken.”
Inflationary pressures could spoil the mood, however, given the exponential gains in essential commodities such as wood and copper. Speaking at the G7 meeting in London on Saturday, US Treasury Secretary Janet Yellen called inflation transient. The pace of the recovery from the depths of economic lows sparked by the pandemic last year suggests that, for her, we can expect price volatility.
“We will be watching this very carefully, keep an eye on it and try to resolve any issues that arise if it becomes necessary,” she said.
Elsewhere, the two analysts said they were monitoring Asia to see if new cases of COVID-19 started to decline. If India, one of the world’s largest economies, were to pass the course, the resulting pull in demand would add a premium to the price of oil.
Karagiannopoulos added that he was eager to see how Iran’s nuclear talks progress. Progress early in the negotiations created headwinds for the price of oil due to expectations that sanctions relief would see more Iranian oil on the market. But progress has since slowed, and the upcoming Iranian presidential elections in June suggest a breakthrough may be far away.
Vargas said that, from his perspective, a deal might not be as imminent as the market previously thought. If so, and sanctions relief is not on the cards at the moment, it would support oil prices even more.