Oil prices rose more than 2 percent on Friday after US jobs data approved a debt ceiling deal that would prevent the government from defaulting, bolstering hopes for a possible pause in Federal Reserve rate hikes.
Now the focus turned to a meeting of OPEC and its allies this weekend.
Brent futures rose $1.85, or 2.5%, to $76.13 a barrel, while West Texas Intermediate (WTI) crude was up $1.64, or 2.3%, to $71.74 a barrel.
The closings were the highest since May 26 for WTI and May 29 for Brent. During the week, both contracts were down nearly 1%, their first weekly losses in three weeks.
Open interest on futures contracts rose to its highest level since July 2021 for Brent and March 2022 for WTI on Thursday.
The U.S. Senate, after House of Representatives ratification, passed a deal that suspended the government’s debt ceiling cap, eliminating a default that would shake financial markets.
US employers increased hiring in May; the unemployment rate rose to 3.7%. A moderation in wages could allow the Federal Reserve to skip a rate hike for the first time in more than a year this month, which could bolster oil demand.
Oil traders focused on the June 4 meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia. In April, the group announced a surprise production cut of 1.16 million barrels per day, but the resulting price gains have evaporated and crude is trading below pre-cut levels.
Some sources except Russia, say OPEC+ is discussing an additional oil production cut as a possible option.
It’s not wise to buy short-term crude as we head into the OPEC+ meeting over the weekend. Traders should never underestimate what the Saudis will do and leverage during the OPEC+ meetings. Saudi Arabia is OPEC’s largest producer.
Baker Hughes said U.S. energy firms this week cut the number of oil rigs operating by the most since September 2021, cutting the total number for the fifth week in a row.
US drillers have been cutting back on drilling for months as US crude prices have dropped 11% since the start of the year and natural gas futures fell 51%.
Reminiscent of the approaching Atlantic hurricane season, Tropical Storm Arlene formed in the Gulf of Mexico near Florida. It is expected to weaken in the coming days as the US Gulf Coast moves away from oil and gas infrastructure and moves south towards Cuba.
On the demand side, manufacturing data from China, the world’s second-largest oil consumer, paints a mixed picture.
Consumers in megacities like China, Shanghai, and Shenzhen are suffering from early heatwaves that are expected to persist through June, straining power grids while running air conditioners.