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Oil to cut its losses this week with calm in the Middle East and anticipation of more US data

Today's market analysis on behalf of Samer Hasn Market Analyst and part of the Research Team at XS.com

 

May 3, 2024 (Investorideas.com Newswire) Crude oil prices are slightly higher today by more than 0.2% for both major benchmarks, Brent and WTI. While they suffered a severe series of losses that pushed prices to their lowest levels in a month and a half.

Today's crude gains come despite talk about the possibility of a temporary cease in the conflict in Gaza and also come in anticipation of a series of data from the US labor market that will help markets strengthen their expectations about the path of monetary policy for the rest of this year.

Many regional and international actors are leading efforts to reach a temporary ceasefire in Gaza and pushing to prevent the implementation of the ground military operation in Rafah, which would change the features of the conflict in the entire region in an unpredictable way, and this is what fuels the state of uncertainty prevailing in the markets.

While the trend towards calm is the dominant situation, the negotiations may collapse at any moment, and the Israeli side will begin implementing its ground operation, which comes in response to multiple internal pressures, especially from the far right.

Markets are also reacting to talk about OPEC+’s intention to extend the oil production cut, by 2.2 million barrels per day, in the second half, especially if weak demand continues.

While the trend to keep interest rates for a much longer period than expected may extend the period of weak demand as well and keep crude prices under downward pressure, while the only thing left to support prices may be further deterioration of the conflict, whether in the Middle East or in Ukraine. Markets also do not expect a cut in interest rates earlier than next September.

US labor market data, whether non-farm payrolls, unemployment and average hourly earnings growth, if they are stronger than expected may also feed the hypothesis of higher for longer rates, which may hinder oil gains.

The first-quarter results of major oil corporates, which are mostly weaker than expected, also do not help support prices and stop their decline. Yesterday, we also witnessed below expectations earnings for both Shell and ConocoPhillips, as the latter mainly blamed the mild weather conditions in the winter, and this contributed to reducing production levels, which the company still aspires to expand, in a positive sign about the future of demand.

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