Weak US macroeconomic data rekindled expectations of interest rate cuts. Oil prices plummeted this week — falling for five consecutive days, the worst level in three months — to a nearly two-month low.

Brent crude oil fell by more than 7% this week, while WTI fell 6.8% to $82.96 per barrel and $78.11 per barrel, respectively.

According to data released on Friday, the increase in the US non-farm payrolls in April fell significantly short of expectations, the smallest increase in half a year. The unemployment rate unexpectedly rose, and the year-on-year wage increase was lower than expected and previous values. After the data was released, traders' expectations for the Fed to cut interest rates for the first time were brought forward from November to September.

“The economy is slowly slowing down,” Matador Economics economist Tim Snyder said, and the data provided more support for the Fed to cut interest rates at least once this year.

Earlier this week, the Federal Reserve kept interest rates unchanged and pointed out that interest rate cuts may be postponed in the face of high inflation. Investors are worried that long-term higher borrowing costs will inhibit economic growth in the US, the world's major oil consumer, and further affect oil demand.

Meanwhile, geopolitical risks in the Middle East are showing signs of abating.

According to Global News on Saturday, Hamas will announce approval of the latest proposals on a cease-fire and hostage release in Gaza in the next few days. The relevant agreement is about to be reached.

The report said that the US has promised that Israel will withdraw all military forces from Gaza after the completion of the third phase of the agreement. Hamas hopes to reach an agreement acceptable to all parties before the end of this weekend, sources said.

The possibility that the war will be suspended again has reduced the geopolitical risk premium that has affected oil prices over the past few months.

Are the next two months critical? Oil inventories declined at an accelerated pace, and demand reached a record high

The next two months are critical to petroleum fundamentals. A team of analysts led by Paul Horsnell, head of commodity research at Standard Chartered Bank, said in the latest report that oil inventories are expected to drop drastically by 189 million barrels in the first half of this year, in stark contrast to the 218 million barrels increase in inventory in the first half of last year.

Our model shows that May and June will be the period of the fastest decline in inventories in the first half of the year, a critical period for whether oil fundamentals will tighten further or be disappointing.

US energy giant Baker Hughes cut the number of oil and gas rigs in operation for the second week in a row this week, to the lowest level since January 2022.

For the week ending May 3, the number of oil and gas rigs (an early indicator of future production) dropped by 8 to 605, the biggest weekly decline since September 2023. The number of oil rigs dropped by 7 to 499 this week, the biggest weekly drop since September 2023. The number of rigs has been declining every week since November 2023.

Notably, the next OPEC+ Ministerial Meeting is scheduled to be held in Vienna on June 1. Standard Chartered Bank predicts that OPEC may increase production by more than 1 million barrels per day in the third quarter without increasing inventory.

The more critical factor is demand. Standard Chartered analysts expect global oil demand to reach a record 103.1 million barrels per day in May and further increase to 103.8 million barrels per day in June.

We expect demand (oil) to increase by 1.62 million barrels per day in May, and 1.74 million barrels per day in June.

Compared with the US Energy Information Administration (EIA) forecast, Standard Chartered Bank's forecast for June demand is the same, while demand for May is more optimistic.

Where will oil prices go during the year? Analysts are divided

Looking ahead, Standard Chartered expects Brent crude oil to rise back to the level at the beginning of the year by the end of the year.

Specifically, the recent average futures price of Brent crude oil is expected to be 94 US dollars per barrel in the second quarter, rising to 98 US dollars per barrel in the third quarter, and further rising to 106 US dollars per barrel in the fourth quarter. In comparison, the first quarter of this year was $107 per barrel.

Standard Chartered Bank wrote in the report:

If the return of some crude oil is delayed, we expect the supply gap in August to exceed 2 million barrels per day.

In our opinion, OPEC+ controls supply for the second half of the year; however, we don't think market pricing and sentiment fully reflect this.

Additionally, Standard Chartered Bank predicts that the average price of Brent crude oil will be $109 per barrel in 2025, $128 per barrel in 2026, and $115 per barrel in 2027.

Morningstar DBRS also acknowledged that demand for crude oil since this year has been stronger than expected. However, the recent rise in crude oil prices will stimulate a sharp increase in production in non-OPCE+ countries, and global economic growth will generally weaken against the backdrop of rising interest rates, which will limit the further rise in oil prices.

“Unless the Middle East conflict escalates drastically, causing major oil producers in the region to fall into trouble,” Morningstar expects oil prices “to eventually fall to our mid-term pricing expectations,” that is, 50 to 70 US dollars per barrel.

Morningstar predicts that the average price of Brent oil is 78 US dollars per barrel in 2024, the average price for 2025 and 2026 is 63 US dollars per barrel; the average price of WTI in 2024 is 75 US dollars per barrel, and the average price for 2025 and 2026 is 60 US dollars per barrel.

Editor/Somer