By Scott DiSavino
NEW YORK (Reuters) -Oil prices rose about 3% to a one-week high on Monday, buoyed by hopes of rising fuel demand this summer despite a stronger U.S. dollar and expectations that the U.S. Federal Reserve will will leave interest rates high for longer.
The Fed aggressively raised rates in 2022 and 2023 to curb the rise in inflation. Those higher interest rates have raised borrowing costs for consumers and businesses, which could slow economic growth and reduce demand for oil.
Likewise, a stronger U.S. dollar can reduce demand for oil by making dollar-denominated commodities such as oil more expensive for holders of other currencies.
futures rose $2.01, or 2.5%, to settle at $81.63 a barrel, while U.S. West Texas Intermediate (WTI) crude rose $2.21, or 2.9%, to $77, 74.
That was the highest closing price for both crude oil benchmarks since May 30.
“The future is higher as summer demand expectations support prices… even as the broader macro landscape remains less optimistic than in recent weeks,” analysts at energy consultancy Gelber and Associates said in a note.
Analysts at Goldman Sachs said they expect Brent to rise to $86 a barrel in the third quarter, noting in a report that solid summer transportation demand pushed the oil market to a deficit of 1.3 in the third quarter. million barrels per day (bpd).
The US dollar, meanwhile, rose to a four-week high against a basket of other currencies, while the euro fell sharply on political uncertainty in Europe after far-right parties’ gains in voting for the European Parliament left an aggrieved French prompted President Emmanuel Macron to call early national elections.
Oil posted its third straight weekly loss last week on concerns that a plan to make some production cuts from October by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, will lead to rising supply contributions.
Despite OPEC+ cuts, oil inventories have risen. Inventories rose last week, as did gasoline stocks. Energy consultancy FGE also expects oil prices to rise, with prices reaching the mid-80s in the third quarter.
“We continue to expect the market to strengthen,” FGE said. “But a convincing signal of tightening will likely be needed based on preliminary inventory data.”
LOOKING FORWARD
Investor attention now turns to the release of US Consumer Price Index data for May on Wednesday for clues as to when the Fed could start cutting rates.
The market is also awaiting the conclusion of the Fed’s two-day policy meeting on Wednesday, during which the central bank is expected to keep interest rates steady.
Markets have rolled back expectations for Fed rate cuts in September after stronger-than-expected jobs data on Friday, with prices now reflecting a less than 50% chance of a cut. Expectations for a cut rose to 69% last week.
Traders have also lowered their expectations for the size of Fed easing this year, with pricing implying just one cut instead of two ahead of payrolls data, data from financial firm LSEG showed.
The market is also awaiting monthly oil supply and demand data from the US Energy Information Administration (EIA) and OPEC on Tuesday and the International Energy Agency (IEA) on Wednesday.
