HG MARKETS:

Oil prices experienced slight gains on Friday amid expectations of continued output cuts by OPEC+, but they were poised for their most significant weekly decline in three months due to uncertainties surrounding demand and easing tensions in the Middle East reducing supply risks. Brent crude futures for July saw a modest increase of 24 cents, reaching $83.91 per barrel, while U.S. West Texas Intermediate crude for June rose by 19 cents, or 0.3%, to $79.19 per barrel. Nevertheless, both benchmarks were set for weekly losses as concerns grew over the potential impact of sustained high interest rates on economic growth, particularly in the United States, the world’s largest oil consumer, and other regions.

The recent downward trend in oil prices was primarily driven by breaches in technical levels, prompting traders to evaluate the possibility of further declines. Currently, key indicators such as the relative strength index suggest that futures have been oversold. Additionally, a decline in the value of the dollar earlier in the day made commodities priced in the currency more attractive.

With the US driving season almost upon us, high inflation may see consumers opt for shorter drives over the holiday period. In the United States, data from the Energy Information Administration (EIA) indicated a significant increase of 7.3 million barrels in crude stockpiles in the most recent week, accompanied by a rise in crude production to 13.15 million barrels per day in February, the highest level in nearly three-and-a-half years. Moreover, market attention has turned to U.S. economic data and indicators of future crude supply from the world’s leading producer. Despite the U.S. Federal Reserve maintaining interest rates this week, recent high inflation readings may delay potential rate cuts.

Geopolitical tensions stemming from the Israel-Hamas conflict, which previously supported elevated prices due to global supply risks, are diminishing as Israel and Hamas consider a temporary ceasefire and engage in talks with international mediators. Brent crude is on track for a 6.3% weekly decline, while WTI is approaching a loss of 5.6% for the week. This decline coincides with the upcoming meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, known as OPEC+.

On the supply side, the main oil company of the United Arab Emirates announced an increase in production capacity, one month ahead of the country’s meeting with other OPEC+ members to determine output levels for the second half of the year. Sources from OPEC+ producers indicated that the group might extend its voluntary oil output cuts of 2.2 million barrels per day beyond June if oil demand fails to recover. However, formal discussions have yet to commence ahead of the June 1 meeting. Later on Friday, the U.S. Bureau of Labor Statistics will release its monthly nonfarm payroll report, a key measure of the country’s job market strength, which the Fed considers when setting interest rates. Higher rates typically dampen economic activity and can reduce oil demand. Additionally, energy services firm Baker Hughes is scheduled to release its weekly count of oil and gas rigs, serving as an indicator of future crude output.