Oil Prices Hold Steady Amid Rate Hike Speculations and Supply Constraints

Oil prices remained stable on Monday as traders anticipated further rate hikes from major central banks in the U.S. and Europe. However, the limited supply and prospects of Chinese stimulus efforts provided support, with Brent crude holding above $80 a barrel.

Last week marked the fourth consecutive week of gains for the benchmarks, rising by 1.5% and 2.2% respectively, primarily due to anticipated supply constraints following OPEC+ production cuts. Additionally, escalating conflicts in Ukraine after Russia’s withdrawal from a U.N.-brokered safe sea corridor agreement for grain exports contributed to the tightening supply situation.

Citi Research pointed out that the rise in oil prices reflects the impact of Saudi oil output cuts on the market. Despite stronger summer demand for gasoline and jet fuel, tightening conditions are pushing prices higher. The bank forecasts an average price of $83 a barrel for the third quarter. Similarly, analysts from the National Australian Bank believe that OPEC’s supply cuts and expectations of further stimulus measures in China will continue to drive prices higher through the third quarter of 2023.

Investors are closely watching the Federal Reserve and European Central Bank for expected quarter-point rate hikes this week, as rising interest rates have affected investments and strengthened the dollar. Furthermore, market participants are hopeful that China will implement targeted stimulus measures to boost its economy, potentially increasing oil demand in the world’s second-largest consumer. On Monday, China’s state planner revealed plans to support private investment in specific infrastructure sectors and pledged to provide stronger financing support for private projects.