The price of crude oil has risen sharply this week. The main reason for this is the market's expectation that OPEC will not increase its production. In addition, increased American oil consumption further pushed up the oil price. However, on Wednesday, a correction took place as the market shifted its focus to the American interest rate policy.
After hitting a low last week, the oil price is recovering. On Wednesday, May 22, the oil price reached $81.36 per barrel. This is the highest level since February 24. On May 28, the oil price rose to $84.63 per barrel, the highest since April 29. On Wednesday, May 29, the price corrected back to $83.54.
This week, attention shifted from the weak global economy and American overproduction to the upcoming OPEC+ meeting. In recent weeks, discussions within the oil cartel about a higher target led to a price drop in the oil market. The market now agrees that a higher production is unlikely, giving prices an extra boost.
Analysts expect the production levels of major oil-producing countries to remain stable. Analysts suggest that an increase in production would likely push the oil price below $80. This is particularly unacceptable for the leading member Saudi Arabia, as the Gulf state aims for a level around $100 per barrel. Despite the significant price increase, the market expects the price to balance out slightly lower. Deutsche Bank, for instance, predicted a price of $83 per barrel in the latter part of the second quarter.
Memorial Day
The slightly higher price is mainly due to increased American demand. In the United States, more people chose to fly to visit their families for the long Memorial Day weekend. Analysts note that people often fly to visit family during this weekend, leading to about 4.8% higher oil demand than usual, as reported by Bloomberg. The market anticipates that American oil consumption will remain high for the time being. During the summer, the oil market picks up due to increased demand for kerosene. This effect is particularly noticeable in the American market, as Americans often fly to visit their families.
Correction
On Wednesday, May 29, the oil price dropped as traders expected the US Federal Reserve (Fed) to postpone interest rate cuts. Some analysts even predict that the interest rate will not be adjusted until 2025. Last week, the minutes of the US Federal Reserve indicated that several officials believe it would be unwise to lower the interest rate, as various inflation indicators are not aligning. Some officials even suggest raising the interest rate further, although this is not expected.
Traders chose to bet on a decline above the $84 level, as the anticipated economic growth is likely to be absent.
The diesel price follows the oil price with a slight delay. On Friday, May 24, the diesel price dropped to €126.55 per 100 liters. By Friday, May 29, this price had risen again to €128.08.