Crude oil futures fell to three-month lows on Friday as the summer driving season began with the Memorial Day holiday. U.S. crude oil hit an intraday low of $76.15, the lowest level since February, while global benchmark Brent fell to $80.65, the lowest level since February as well. Both benchmarks are on pace for a weekly loss of about 4% and 3%, respectively. Today’s energy prices include West Texas Intermediate July contract at $76.67 a barrel, down 0.25%, and Brent July contract at $81.13 a barrel, down 0.26%. RBOB Gasoline June contract is at $2.45 a gallon, down 0.6%, and Natural Gas June contract is at $2.63 per thousand cubic feet, down 0.87%.
Analyst Tamas Varga from oil broker PVM noted that macroeconomic developments have not been supporting oil prices, with Russia overproducing in April despite commitments to reduce production. OPEC and its allies, led by Russia, are set to have a virtual meeting on June 2 to review production policy. The coalition of OPEC+ members is voluntarily holding 2.2 million barrels per day off the market in an effort to support prices. Varga mentioned that the upcoming OPEC meeting is expected to roll over the current production ceiling, especially since oil prices are in a downward trend. However, he believes that this may not be enough to significantly boost market sentiment, as there is nearly 6 million barrels per day of supply cushion in the market.
The current downturn in oil prices is attributed to various factors, including oversupply concerns and lack of support from macroeconomic developments. Despite efforts by OPEC+ members to cut production, the market remains oversupplied. With the summer driving season underway, demand for gasoline is expected to increase, which could help stabilize oil prices in the coming months. However, uncertainties surrounding global economic recovery and potential increase in production from Russia and other oil-producing countries may continue to put pressure on oil prices in the near term.
The ongoing COVID-19 pandemic has also impacted oil demand, with travel restrictions and lockdown measures affecting consumption. As more countries start to ease restrictions and resume economic activities, there is hope that oil demand will gradually recover. However, the pace of recovery remains uncertain, and any setbacks in the fight against the pandemic could further impact oil prices. Additionally, geopolitical tensions in key oil-producing regions could also influence market sentiment and contribute to price volatility in the future.
Investors and analysts are closely monitoring the upcoming OPEC meeting to get a sense of the production policy moving forward. The decision to roll over the current production ceiling could provide some support for oil prices in the short term. However, with an oversupplied market and uncertainties surrounding global economic conditions, it may take time for oil prices to see a sustained recovery. In the meantime, market participants will continue to assess the impact of various factors on oil prices and adjust their strategies accordingly.
Overall, the current downtrend in oil prices reflects a combination of factors, including oversupply concerns, lack of macroeconomic support, and uncertainties surrounding global economic recovery. While efforts by OPEC+ members to cut production are in place, the market remains oversupplied. With the summer driving season underway, increased demand for gasoline could provide some support for oil prices in the near term. However, continued uncertainties related to the COVID-19 pandemic, geopolitical tensions, and production decisions by key oil-producing countries will likely contribute to price volatility in the coming months.
