Oil prices jumped nearly 2.5% on Monday, reaching their highest since April as geopolitical tensions boost supply and demand sentiment despite economic and interest rate uncertainty, and as the summer driving season kicks off in earnest, sparking hopes of higher consumption.
On Monday at 4:20 p.m. ET, West Texas Intermediate (WTI) was trading up 2.35% at $83.46, while Brent crude was up 2.05% at $86.74.
Summer demand optimism is being further buoyed by OPEC+ supply cuts, which were extended in early June, with plans to only gradually unwind cuts through late 2025 after having to initiate deeper cuts earlier in the year due to rising American shale output and new barrels coming from offshore Guyana. The most significant output cuts will be extended well into 2025.
On the geopolitical front, concerns continue that Israel will invade Lebanon in an all-out war with Hezbollah, potentially tightening Iran-Hezbollah and Iran-Russia cooperation and cementing the alliance.
"Hezbollah and Israel seem to be drifting closer and closer to a full-scale war that runs the risk of drawing in OPEC member Iran and its Shiite allies in Iraq, Yemen and Syria," Bob Yawger, director of energy futures at Mizuho, said in a note, as reported by Reuters.
Summer driving was likely the biggest price booster on Monday.
"The (energy) complex is beginning this new week in strong fashion as it continues to acquire support from ... increasing geopolitical risk premium related to Israel-Hezbollah tensions (and) bullish demand expectations for this month with some increased hurricane premium," analysts at energy advisory firm Ritterbusch and Associates said in a note cited by Reuters.
The weather could also add more upward momentum to oil prices later this week, with the National Oceanic and Atmospheric Administration (NOAA) warning that Hurricane Beryl, the first of the season and a category 4, is making its way towards the Gulf of Mexico, where it is expected to hit the Yucatan Peninsula on Friday. The hurricane could potentially disrupt the oil and gas industry.
By Charles Kennedy for Oilprice.com
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