Oil prices increased on Wednesday 29 May in Asian trading, with major producers expected to maintain the output cuts announced at OPEC on 26 May, and the anticipated rise in peak summer fuel consumption also a contributing factor.

The price of Brent crude futures for July delivery went up by 18 cents, or 0.2%, to reach $84.40 a barrel by 6:30am UK local time, as reported by Reuters.

Meanwhile, the July US West Texas Intermediate (WTI) futures increased by 28 cents, or 0.3%, to $80.11. Both benchmarks saw gains of more than 1% on 28 May.

The global oil body’s forecast for global oil demand growth in 2024 remains unchanged at 2.2 million barrels per day.

Paul Hasselbrinck, upstream analyst at GlobalData, said: “These voluntary cuts aim to reduce production by 2.2 million barrels per day for the second quarter of 2024, 77% of which would come from Saudi Arabia, Russia and Iraq.

“Nonetheless, voluntary cuts due for the first quarter were missed by 660,000bpd. Compliance has been an issue in the inner OPEC circle, casting doubts on prospects of meeting the current quotas.”

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On 27 May, OPEC Secretary General Haitham Al Ghais said that the global economy had shown economic resilience, and remained positive about oil demand worldwide in the immediate future.

May’s Monthly Oil Market Report from OPEC shows that the projected global economic growth rates for 2024 and 2025 will be steady, at 2.8% and 2.9%, respectively.

Hasselbrinck suggests that these production reductions or limits are essentially just postponements. Delaying production will avoid a significant price drop due to oversupply, allowing the market to adjust.

Therefore, these delays seem reasonable but could be challenged by expectations of a rapid shift away from oil, and an increasing share of non-OPEC production hitting the market.

Hasselbrinck added: “The cuts are part of a dynamic strategy to achieve stability, but trying to predict when stability will come proves to be a fool’s errand.

The start of the peak demand season in the US, the world’s largest oil consumer, is indicated by the Memorial Day holiday on 27 May. As reported by Reuters, maintaining production cuts during this time should help support prices as demand increases.

“Increased production from North America in the last decades has exerted downward pressure on crude prices and forced OPEC+ countries to adopt bolder cuts to mitigate the impact on prices,” said Hasselbrinck.

“This trend is underpinned by the US shale oil boom in the early 2000s. For the US, specifically, energy independence from increased oil and gas production meant rising demand did not translate into a national security risk, unlike for Europe.”

Last week, oil traders reduced some of the risk premium in prices since the beginning of the year. However, there is increasing worry that the Israeli attack on Rafah, Gaza, contributed to the volatility in oil prices seen on 27 May.

Hasselbrinck comments that “despite the increased geopolitical risk, the direct effect of Israeli attacks in Gaza and Rafah on oil prices is limited, as production and trade routes are not significantly affected”.

He added: “However, fears of an escalation involving Gulf countries and Iran would have knock-on effects on prices. As evidenced by the lack of responsiveness to the rising attacks and tension, the markets do not believe an escalation is likely, given the trade-offs for all parties involved.”