Oil Prices Surge on Technical Rebound and Summer Demand Optimism

Oil prices experienced a significant upswing on Tuesday, recovering from a sharp decline the previous day triggered by OPEC+ production decisions. The rebound was fueled by a combination of factors, including a technical correction after the previous day’s losses and increasing optimism regarding gasoline demand as the summer driving season approaches.

Brent crude, the North Sea benchmark, for July delivery, rose by 3.19% to reach $62.15 per barrel. West Texas Intermediate (WTI), the US benchmark, for June delivery, jumped even more dramatically, gaining 3.43% to settle at $59.09 per barrel.

The previous day’s price slump was largely attributed to the announcement by the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, regarding an accelerated return of crude oil barrels to the market. According to Robert Yawger, an analyst at Mizuho USA, "The announcement by OPEC+ of an acceleration of the return of its barrels to the market ‘spooked traders yesterday,’ causing crude prices to fall."

The specific announcement that unsettled the market was the decision by Saudi Arabia, Russia, and six other OPEC+ members to increase oil production by an additional 411,000 barrels per day in both June and May. This adjustment deviated from the initial plan, which had anticipated a more modest increase of only 137,000 barrels per day. In response to this news, oil prices on Monday approached their lowest levels since 2021.

The market’s initial negative reaction highlighted concerns about a potential oversupply situation. Earlier in the year, prices had already been under pressure due to weakening demand linked to concerns about economic growth, particularly stemming from trade disputes initiated by the Trump administration. The combination of faltering demand and increased supply from OPEC+ had contributed to a significant price decline since the beginning of the year.

However, the lower prices appeared to have attracted buyers back into the market on Tuesday, leading to the observed rebound. "The low oil prices are pushing operators to buy Tuesday, and ‘we are seeing a new impetus’ in the market today," Yawger noted.

Beyond the technical rebound, the market was also supported by speculation surrounding potential positive developments in trade negotiations. Some speculative buyers were anticipating announcements in the coming days that could ease trade tensions, potentially with significant trading partners for oil, such as Japan, Canada, or countries within the European Union.

The underlying strength of gasoline demand also played a crucial role in bolstering oil prices. According to analysts, gasoline demand in the United States had been "rather positive" in recent weeks. This strong demand directly impacts the need for crude oil, as it is the primary feedstock for gasoline production. "From the moment gasoline demand is important, crude oil must be sent to refineries to produce it," Yawger explained.

Looking ahead, the market’s focus is shifting to the upcoming weekly report from the US Energy Information Administration (EIA). Traders are eager to examine the EIA report to confirm whether the recent trend of strong gasoline demand is continuing. "Operators hope that gasoline demand will be maintained ‘until the summer,’" Yawger stated, emphasizing the importance of the summer driving season, during which fuel consumption typically peaks.

The anticipated summer demand surge is a key factor underpinning market optimism. The increased travel and vacation activity during the summer months typically translate into higher gasoline consumption, which in turn increases demand for crude oil. The market is therefore closely monitoring indicators that could provide insights into the strength of this seasonal demand.

In summary, the rise in oil prices on Tuesday was a multifaceted event, driven by a combination of technical factors, speculative trading, and underlying fundamentals. The technical rebound served as a correction to the previous day’s losses, while optimism about trade negotiations and strong gasoline demand provided further support. The market now awaits the EIA report to gain a clearer picture of the current demand landscape and to assess the potential for continued price increases as the summer driving season approaches.
The long-term trajectory of oil prices remains subject to various uncertainties, including geopolitical risks, the evolution of the global economy, and the ongoing dynamics of OPEC+ production policies. However, the recent rebound highlights the sensitivity of the market to shifts in sentiment and the importance of monitoring both supply and demand factors. The interplay of these elements will continue to shape the price of oil in the weeks and months ahead.