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Oil Prices Start the Week With a Slight Gain but Uncertainty Remains

Crude oil prices started the week with a slight gain on expectations of higher fuel demand during the summer driving season.

The rest of the session may yet see oscillations, following strong U.S. jobs data reported last Friday, which appeared to have dampened expectations of rate cuts—and improved demand—even further.

The Bureau of Labor Statistics reported an increase of 272,000 in nonfarm jobs for May, which was higher than expected and pushed the dollar higher. Even though the unemployment rate also went up, to 4%, the market focused on the job additions with an eye to the upcoming Fed meeting this week.

Meanwhile, in Europe, the euro came under pressure after the expected right-wind wave swept over several EU member states in the Sunday elections for the European Parliament, adding to commodity market uncertainty. The news that France will hold snap elections at the end of the month following a crushing victory of Marine Le Len’s National Rally did not help oil prices either.

“Regarding Macron and elections, it does create another layer of uncertainty, coming after the upside surprise in U.S. non-farm payrolls, which saw yields scream higher,” Reuters quoted IG analyst Tony Sycamore as saying.

“That will likely create more angst amongst some of the member states of OPEC+ as to when they can return their cuts back to the market given the negative reception this proposal received last week post the OPEC+ meeting,” Sycamore added.

ING’s Warren Patterson and Ewa Manthey noted that bearish sentiment remains dominant on oil markets, leading to repositioning that involved a substantial reduction in net long positions, by over 102,000 to 5,678 in ICE Brent. The analysts noted the current long positions in the international benchmark are the lowest since 2014.

Another aggravating factor for oil prices was the increase in inventories across OECD countries. Those were reported at 48 million barrels on land in May, which was significantly higher than the 2015-2019 average, which stood at 30 million barrels, according to energy consultancy FGE.

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However, FGE sounded a bullish note for the rest of the year, saying “We continue to expect the market to firm up and crude prices to reach mid-US$80/bbl levels as we move into 3Q 2024, but it will likely need a convincing signal of tightening from preliminary inventory data.”

By Irina Slav for Oilprice.com

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