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Oil Prices Dip Amid Strong U.S. Jobs Data and Firmer Dollar
Oil prices marked a slight decline for the second consecutive session on Monday, influenced by a stronger dollar and revised expectations of interest rate cuts. This trend follows robust U.S. jobs data released last Friday. Brent crude futures edged down by 4 cents to $79.58 per barrel, while U.S. West Texas Intermediate crude futures also fell by 4 cents, reaching $75.49 per barrel by 0036 GMT.
Last month, the U.S. reported a higher-than-expected increase in job additions, prompting investors to adjust their forecasts regarding interest rate cuts and boosting the dollar's value. A stronger dollar, in turn, makes dollar-denominated commodities like oil more expensive for non-U.S. currency holders.
European Market Concerns
The euro faced pressure due to political uncertainties in the eurozone. French President Emmanuel Macron called snap legislative elections for June, following a poor performance in the European Union vote against Marine Le Pen's far-right party. Analyst Tony Sycamore from IG noted that this political tension adds another layer of uncertainty, compounded by the U.S. non-farm payrolls' unexpected positivity, which caused bond yields to rise sharply.
Focus on Central Bank Meetings
Markets are closely watching the upcoming meetings of the U.S. Federal Reserve and the Bank of Japan this week. Analyst Tony Sycamore highlighted the potential for hawkish outcomes, which could exacerbate concerns among OPEC+ member states regarding the timing of returning production cuts to the market, especially after the negative reception of this proposal last week.
OPEC+ Production and Global Supply
Both Brent and WTI saw their third consecutive weekly loss as worries grew over the OPEC+ plan to lift production cuts starting in October, a move that could increase global supply. The announcement coincided with a significant rise in commercial OECD crude and product stocks on land, amounting to an estimated 48 million barrels in May compared to a five-year average build of 30 million barrels, reported energy consultancy FGE.
Future Oil Market Projections
Analysts and traders anticipate that summer holiday demand will help deplete stockpiles and support prices. FGE forecasts that the oil market will strengthen, with crude prices expected to climb to mid-$80 per barrel by the third quarter of 2024, contingent upon clear signals of tightening from preliminary inventory data.
U.S. Domestic Actions
The U.S. government has intensified its efforts to replenish the Strategic Petroleum Reserve by purchasing more crude oil as prices declined. Concurrently, U.S. energy firms reduced the number of operating oil and natural gas rigs to the lowest levels since January 2022, according to energy services firm Baker Hughes.
In the Middle East, Iraq's Oil Minister Hayan Abdel-Ghani reported progress in negotiations with Kurdistan region officials and international companies to resume oil exports via the Iraq-Turkey pipeline, previously handling around 0.5% of global oil supply.
