Oil prices surged to their highest levels in two months on Tuesday, driven by a combination of rising summer demand and potential supply disruptions due to Hurricane Beryl.
Brent crude oil, against which Nigerian oil is priced, climbed 70 cents, or 0.81% to $87.30 a barrel.
Similarly, U.S. West Texas Intermediate (WTI) crude increased by 68 cents, or 0.82%, to $84.06 a barrel, its highest since April 26.
Both benchmarks had already gained approximately 2% in the previous session, signaling a robust upward trend.
The primary catalyst for this surge is the anticipated rise in U.S. gasoline demand as the summer travel season intensifies, particularly with the Independence Day holiday this week.
The American Automobile Association (AAA) forecasts a 5.2% increase in travel during the holiday period compared to 2023, with car travel expected to rise by 4.8%.
In addition to the seasonal demand boost, oil prices are being supported by a rising geopolitical risk premium associated with Middle East tensions.
This, coupled with signs of subsiding inflation in the United States, has rekindled hopes of potential interest rate cuts by the Federal Reserve.
Recent U.S. data has bolstered the market view that the Federal Reserve might proceed with two quarter-point interest rate cuts later this year.
Further compounding the supply concerns is Hurricane Beryl, which struck the Caribbean as a Category 4 storm on Monday.
The hurricane’s trajectory towards Mexico raises fears of disruptions to U.S. refining and offshore production.
“A dangerous hurricane in the Caribbean Sea is expected to hit Mexico, intensifying concerns regarding the supply side of the equation,” said Charalampos Pissouros, senior investment analyst at brokerage XM.
Market analysts are closely monitoring the situation, particularly as lower crude exports from OPEC and Russia coincide with the peak summer refinery runs, contributing to a tighter-than-expected market.
Claudio Galimberti of Rystad Energy noted, “Lower crude exports from OPEC and Russia, just as refinery runs ramp up for the summer peak, are contributing to a tighter market and prices are reacting accordingly.”
Despite these bullish factors, some caution remains due to signs of lower-than-expected demand growth. Data indicates that first-half crude imports to Asia, the world’s largest oil-consuming region, were lower than in the same period last year.
However, the prevailing high geopolitical risk premium continues to lend support to oil prices.
As markets navigate these dynamics, industry stakeholders are advised to stay vigilant. The interplay of seasonal demand, geopolitical tensions, and natural disasters underscores the volatile nature of the oil market.
The coming weeks will be critical in determining whether the current price rally is sustainable or if further adjustments will be necessary.