Oil Faces OPEC Test Amid Price Weakness
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Oil Faces OPEC Test Amid Price Weakness

Story Highlights

Oil prices continue to face pressure from a weak macroeconomic picture. The outcome of OPEC’s upcoming meeting is a key event to keep an eye on for the next trajectory of oil prices.

The benchmark crude, WTI (CM:CL), has tumbled by nearly 6% over the past month as demand concerns and a weak economic picture in the U.S., as well as China, weigh on traders’ sentiments. In fact, oil prices have been displaying weakness over the past week despite a decline in U.S. oil stockpiles.

Decline in U.S. Stockpiles

The latest data from the U.S. Energy Information Administration (EIA) indicated a decrease of 4.2 million barrels in crude inventories for the week ended May 24, compared to an expected decline of 1.6 million barrels. Concurrently, numbers from the American Petroleum Institute (API) pointed to a decrease of 6.5 million barrels in U.S. commercial stockpiles for the week ended May 24.

Despite this decline, concerns over weak demand (despite the start of the summer driving season) and the latest GDP numbers are denting bullish sentiment. Additionally, a weak economic picture in China is weighing on the demand outlook for oil. Compounding this scenario are the recent comments from Fed officials signaling a continuation of its hawkish stance and potential rate hikes if inflation does not fall in line with the U.S. central bank’s stated 2% goal.

All Eyes on OPEC

Amid this dynamic, the next trajectory for oil prices could be decided by the outcome of OPEC’s meeting on June 2. The organization is widely expected to maintain its production curbs into the second half of 2024. Any addition to its production cuts could lend strength to oil prices.

Meanwhile, in the U.S. Energy Sector…

Meanwhile, the consolidation in the U.S. energy sector continues, with ConocoPhillips (NYSE:COP) planning to acquire Marathon Oil (NYSE:MRO) in an all-stock deal worth $22.5 billion. Another major development in the energy sector this week was Hess (NYSE:HES) shareholders giving a green signal to the company’s merger with Chevron (NYSE:CVX) in a $53 billion deal.  

Is the Price of Oil Expected to Go Up or Down?

In the meantime, the TipRanks Technical Analysis tool is flashing a Sell signal for oil on a monthly time frame, indicating further selling pressure.

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