Improving market sentiment pushes crude higher despite OPEC production increase fears
Global oil markets witnessed an upward wave on Monday morning, as Brent and WTI crude rose by 0.7%.
This rise comes on the heels of US President Donald Trump's decision to extend the deadline for trade negotiations with the European Union until July 9.
What are the details of the decision and its impact ?
Trump announced the extension of the deadline via his truth social platform after a phone call with European Commission President Ursula von der Leyen, who stressed the EU's need for more time to reach a balanced trade agreement.
This decision has contributed to:
- Easing fears of a full-fledged trade war between the world's two largest economic blocs.
- Improving oil demand forecasts while reducing the likelihood of a slowdown in global economic growth.
- Confidence in commodity markets has recovered after weeks of sharp fluctuations.
Factors supporting the rise of oil
Along with the positive news about trade negotiations, several factors contributed to the support of crude prices:
- Chinese demand has improved with expectations of an increase in oil imports in the world's second largest economy.
- Continuing geopolitical tensions in the Middle East and Ukraine
- US oil inventories are declining according to the weekly data of the American Petroleum Institute.
- The weakening of the US dollar, which makes oil cheaper for buyers in other currencies.
Challenges and risks to prices
Despite the current rally, oil markets face several challenges that may limit gains:
- Expectations of an increase in OPEC production as the group is scheduled to make its decision at the June meeting on production plans for July.
- Slowing economic growth, especially in some major economies such as the United States and the eurozone.
- Expectations that central banks will continue to raise interest rates.
- Trump's conflicting statements on trade policy with other trading partners.
