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2 July 2024 | FXGT.com

WTI Crude Oil Gains Over 5% in June Amid Geopolitical Tensions and Summer Driving Demand

  • Oil gains over 5% in June: West Texas Intermediate (WTI) added over 5% in June and continues to show gains in early July, reaching new two-month highs. The increase is driven by expectations of strong summer driving demand, potential U.S. interest rate cuts, and heightened tensions in the Middle East, particularly the conflict between Israel and Hezbollah and Houthi attacks on shipping.
  • Geopolitical tensions: The ongoing Hamas-Israel conflict and attacks on commercial shipping in the Red Sea by Iran-backed Houthi rebels are causing disruptions, forcing shippers to divert routes and impacting global crude oil supplies. This risk is contributing to the current boost in oil prices. Political uncertainties and upcoming key votes in major countries, including the US and France, also play a role.
  • US gasoline demand: Expected to rise as summer travel ramps up, with the American Automobile Association predicting a 5.2% increase in travel during the Independence Day holiday period compared to 2023, and car travel up by 4.8%.
  • Mixed demand growth signals: Despite positive factors, oil price gains are limited by weaker-than-expected demand growth, particularly in Asia, where crude imports in the first half of 2024 were lower than last year, largely due to reduced imports by China.
  • US Economic data and Fed policy: Recent data showed a third month of contraction in U.S. manufacturing and a six-month low in input prices. Signs of cooling inflation and declining U.S. manufacturing activity are renewing hopes for a Federal Reserve interest rate cut, potentially as soon as September, which could boost economic activity and oil demand. Markets now turn their focus to Federal Reserve Chair Jerome Powell’s speech later today for further monetary policy direction.
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