Oil prices climbed significantly on Monday, driven by expectations of a supply deficit due to peak summer fuel consumption and the impacts of OPEC+ production cuts. Both Brent crude futures and US West Texas Intermediate (WTI) crude futures have seen notable increases, reflecting renewed market optimism regarding demand.

Crucially, Brent crude futures rose 54 cents, or 0.64%, to $85.55 a barrel by 1105 GMT. U.S. West Texas Intermediate (WTI) crude futures also gained 49 cents, or 0.6%, reaching $82.03. Both contracts experienced gains of around 6% in June, with Brent consistently settling above $85 per barrel following OPEC+'s decision to extend extensive output cuts through 2025.

This strategic move by OPEC+ has led analysts to predict supply deficits in the upcoming third quarter, driven by heightened fuel consumption for transportation and air-conditioning during the summer season. Analysts from multiple agencies, including IG and JPMorgan, have noted the robust demand indicators in key markets, such as the U.S., and anticipate sustained refinery activity through August.

On a geopolitical front, ongoing tensions between Israel and Hezbollah have contributed to the upward momentum in oil prices. Bob Yawger, an energy futures director at Mizuho, highlighted the risks of an all-out war between Israel and Iran-backed Hezbollah, potentially involving other OPEC member states such as Iran, Iraq, Yemen, and Syria. This geopolitical instability has reinforced concerns about disruptions in global oil supplies.

Despite the summer demand optimism, the market faces headwinds from global economic challenges and rising non-OPEC+ oil output. Factory activity in China, a major consumer and importer of crude, showcased growth among smaller manufacturers due to overseas orders. However, broader surveys indicated weak domestic demand and ongoing trade frictions, which have constrained the industrial sector. Additionally, expectations of an interest rate cut by the U.S. Federal Reserve and rising political uncertainties in Europe and between Israel and Lebanon have maintained a floor under oil prices.

The Atlantic hurricane season, which started with Hurricane Beryl, has further influenced oil market volatility. Beryl, a Category 4 hurricane, threatened to disrupt oil and gas production and consumption in the Americas, with projections of life-threatening winds and flash flooding in the Caribbean's Windward Islands. The National Hurricane Center's forecasts added another layer of uncertainty to supply conditions.

In conjunction with these factors, the recent data from the Energy Information Administration (EIA) have shown a four-month high in oil production and demand for major products in April, lending additional support to prices. Despite these positive indicators, concerns over U.S. gasoline and Chinese apparent demand remain areas of caution for market analysts.

Looking ahead, the oil market continues to monitor the interplay of supply-demand dynamics, geopolitical developments, and potential impacts from natural disasters. With economic and political landscapes in flux, traders remain vigilant as they navigate these multifaceted drivers of oil prices.