Macro

Oil Extends Biggest Gain Since February, WTI Hits $78 Ahead of OPEC Report

WTI climbs above $78, Brent near $82 ahead of key OPEC report and US energy outlook.

By Bill Bullington

6/10, 20:13 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
article-main-img

Key Takeaway

  • WTI crude rose 0.4% to $78.06 a barrel, while Brent closed 2.5% higher at $81.63 ahead of key OPEC and IEA reports.
  • Oil prices surged 2.9% on Monday, marking the biggest gain in four months amid anticipation of supply-demand outlooks.
  • Investors are closely monitoring the Federal Reserve's interest rate decision, impacting market sentiment on oil demand and inflation.

Oil Prices Surge

Oil prices experienced a significant uptick, with West Texas Intermediate (WTI) climbing above $78 a barrel after a 2.9% surge in the previous session. Brent crude also saw gains, closing near $82. This rise comes ahead of a crucial OPEC report that will provide insights into the supply and demand outlook. The monthly OPEC report, due later today, will be followed by the US Short-Term Energy Outlook and an International Energy Agency report on Wednesday. These reports are expected to shed light on the future trajectory of oil prices.

Market Dynamics and Influences

The oil market has been trending lower since early April due to concerns about demand and increased output from non-OPEC countries. The bearish sentiment was further fueled by OPEC+'s plan to restore supply later this year. However, the group has clarified that it could adjust its production plans if necessary. "Today’s recovery comes on the back of a three-week drop driven by OPEC+’s recent decision," noted Fawad Razaqzada, a market analyst at City Index and Forex.com. He added, "With the US driving season underway, demand is likely to recover, keeping the downside limited – for now."

Additional factors influencing the market include news of sanctions on Iran’s shipping sector, which supported prices after last week's slump to a four-month low. The market is also closely watching the Federal Reserve’s interest rate decision due on Wednesday. A robust US economy and persistent inflation have led investors to scale back expectations of an imminent Fed pivot.

Short-Term and Long-Term Outlook

WTI for July delivery rose 0.4% to $78.06 a barrel in early trading in Singapore, while Brent for August settlement closed 2.5% higher at $81.63 a barrel on Monday. The recent gains have helped oil recoup losses from last week’s selloff, as traders bought the dip. The market is now awaiting monthly oil reports from the US government, International Energy Agency, and OPEC+ to provide further clarity on the outlook for the rest of the year.

Crude prices have been under pressure since early April due to a weakening physical market and diminishing geopolitical risk premiums. After OPEC+ announced a potential rollback in production cuts, net-bullish bets for the global benchmark fell by the most on record. However, the weekly tally of US oil and natural-gas rigs from Baker Hughes showed a decline, with the number of active oil rigs falling by four to 492, the lowest level since January 2022. The gas rig count also fell by two to 98, a level last seen in October 2021.