Oil prices climbed on Tuesday, reaching two-month highs, as traders anticipated increased demand driven by the Independence Day holiday and potential supply risks from geopolitical tensions and weather disruptions.
By 07:20 ET (11:20 GMT), Brent crude futures had risen 0.8% to $87.27 a barrel, while West Texas Intermediate (WTI) crude futures were up 0.9% to $84.12 a barrel. Both benchmarks had gained approximately 2% in the previous session, marking their highest levels since late April.
Independence Day Boosts Travel Expectations
The recent surge in crude prices is largely attributed to expectations of heightened fuel demand in the U.S. during the summer travel season. The American Automobile Association (AAA) has forecast a record number of travelers this week due to the Independence Day holiday.
“We anticipate this July 4th week will be the busiest ever, with an additional 5.7 million people traveling compared to 2019,” the AAA stated.
Increased travel typically translates to higher fuel consumption, which is positive for crude demand. However, the recent rise in U.S. fuel inventories has raised some doubts about the strength of this trend.
Geopolitical and Weather-Related Supply Risks
Oil prices have also been supported by concerns over potential supply disruptions in the Middle East. Tensions between Israel and Hezbollah over Gaza remain high, contributing to a higher risk premium on crude.
Additionally, the ongoing conflict between Russia and Ukraine, with Ukraine targeting Russian oil infrastructure, has further bolstered the risk premium on oil. Weather-related risks also play a role, as Hurricane Beryl in the Caribbean Sea poses a threat to offshore oil production along its projected path toward Mexico.
The Organization of the Petroleum Exporting Countries (OPEC) has maintained its production cuts, which analysts expect will significantly tighten crude markets for the rest of 2024.
API Crude Stockpile Data in Focus
Later in the session, the American Petroleum Institute (API) is set to release its latest data on U.S. crude stockpiles. Analysts predict a slight decrease in crude inventories, indicating rising demand. However, last week’s data showed an unexpected build in stockpiles, which dampened some of the optimism.
Analysis
The recent movements in oil prices highlight the complex interplay of seasonal demand, geopolitical risks, and market sentiment. Traders who anticipated the rise in crude prices could have profited from the upward trend. The potential for further supply disruptions from geopolitical and weather-related events suggests that oil prices may continue to experience volatility. Investors should stay informed about these developments to capitalize on future market opportunities.