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Oil Prices Stabilize Amid OPEC+ Restraint and Interest Rate Uncertainties

Global oil prices found stability on Tuesday, as anticipation of OPEC+ sustaining oil supply constraints at its June 2 gathering, coupled with optimism surrounding robust U.S. summer fuel demand, counteracted apprehensions regarding prolonged higher U.S. interest rates.

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On Monday, oil registered a modest increase of over 1% in subdued trading due to public holidays observed in Britain and the United States. Expectations of heightened fuel demand coinciding with the onset of the U.S. summer driving and vacation season lent support to the market.

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The July contract for Brent, the worldwide benchmark, edged up by 17 cents or 0.2%, settling at $83.27 a barrel by 0810 GMT. Meanwhile, U.S. West Texas Intermediate (WTI) crude stood at $78.79, marking an increase of $1.07 or 1.4% from Friday’s closing, despite trading through a U.S. holiday for Memorial Day without a settlement.

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Tamas Varga of brokerage firm PVM remarked, “Despite the indisputably brighter mood seen in the last two days, interest rate concerns will most plausibly act as a (brake) on further attempts to send oil prices meaningfully higher in the immediate future.” He also noted, “It is a fair assumption that no changes in production levels will be forthcoming,” in reference to the upcoming OPEC+ meeting.

Elevated concerns regarding U.S. interest rates persisting at heightened levels for an extended period contributed to crude marking a weekly loss last week. Higher rates elevate borrowing costs, potentially dampening economic activity and oil demand.

However, UBS analyst Giovanni Staunovo observed in a client note, “Despite the general view that high interest rates could result in softer oil demand growth, real-time mobility data indicates oil demand growth is still broadly healthy.”

In the realm of air travel, data from flight analytics firm OAG revealed that U.S. seat numbers on domestic flights for May surged by 5% month-on-month and nearly 6% year-on-year, surpassing 2019 levels.

Traders and analysts are now looking ahead to the online meeting of OPEC+ producers on Sunday, where an expected decision to maintain voluntary production cuts of 2.2 million barrels per day could further bolster prices.

Satoru Yoshida, a commodity analyst with Rakuten Securities, expressed optimism, stating, “We expect oil prices to move higher in the coming days,” citing the anticipated continuation of voluntary output cuts by producers. Yoshida also highlighted the beginning of the U.S. driving season as an additional factor likely to lend support to prices.

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