The United States West Texas Intermediate and international-benchmark Brent crude oil futures rose for a fifth week last week as fuel demand rebounded on strong economic growth and increased travel during the northern hemisphere summer, while crude supplies remained tight as the Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, maintained production cuts.
Oil prices also found support as the approval of a U.S. infrastructure bill boosted optimism over the energy demand outlook. Meanwhile rising COVID-19 cases in Asia have put a modest dampener on the outlook. Indonesia, for example, is battling record-high cases. Malaysia is set to extend a lockdown and Thailand has announced new COVID-related restrictions.
The focus now shifts to the OPEC+ meeting which is scheduled to be held on July 1. OPEC and its allies, including Russia are expected to discuss further easing of their output cuts from August.
Last week, September WTI crude oil futures settled at $73.33, up $2.88 or +4.09% and September Brent crude oil finished at $75.38, up $2.65 or +3.52%.
Upbeat Factors Outweigh the Negatives
The positives driving prices higher are tightening U.S. crude and gasoline supplies, an improving U.S. economy and steadily improving global demand due to vaccine rollouts and the reopening of economies.
Last week’s price surge was fueled by investors impressed by the weekly inventories numbers from the American Petroleum Institute (API) and the Energy Information Administration (EIA). Both showed a draw in crude oil as expected, but the drop in EIA gasoline inventories sent out a signal that demand was healthy. In the EIA report, the drop in crude oil and gasoline stocks confirmed the tight supply.
Meanwhile, strong growth in the United States, Europe and China, bolstered by vaccine rollouts and economies reopening, according to analysts who said this was countered by rising COVID-19 cases and outbreaks in other places.
Weekly Outlook
Early last week, Reuters reported that OPEC+ was discussing a further easing of oil output cuts from August as oil prices rise on demand recovery, but no decision had been taken yet on the exact volume to bring back to the market, two OPEC+ sources said on Tuesday.
OPEC+ is returning 2.1 million barrels per day (bpd) to the market from May through July as part of a plan to gradually unwind last year’s record oil output curbs.
“It is highly possible to increase gradually from August,” said one of the sources, adding that no final decision had been made and the exact volumes are yet to be agreed on.
ANZ and ING expect OPEC+ to increase output by about 500,000 bpd in August, which is likely to support higher prices.
Reuters said the talks mean OPEC and Russia are likely to find common ground again on oil production policy. Moscow has been insisting on raising output further to avoid prices spiking, while key OPEC producers, such as Saudi Arabia, have given no signals on the next step until now.
Russian producers see August as a good time to further ease oil output cuts despite the expected return of Iranian barrels as the market is in deficit, an industry source told Reuters.
SOURCE: Reuters/OperaNews