The price of oil was on course Tuesday to close above $70 a barrel for the first time in two years on investors’ optimism that improving oil demand and a dwindling supply glut may mean the market can absorb any additional supply from OPEC and its allies.
Brent crude, the international energy benchmark, rose 2.6% to $71.09 a barrel. It is on track for its highest close since May 2019. West Texas Intermediate futures gained 3.5% at $68.61 a barrel. The U.S. gauge on Tuesday crossed its highest level since October 2018.
Members of the Organization of the Petroleum Exporting Countries and their allies, a group known as OPEC+, on Tuesday agreed to continue relaxing curbs on oil production, signaling their confidence in improving oil demand and a drop in the global supply glut. Prices began rallying after a technical committee within the cartel on Monday confirmed forecasts for a rebound of six million barrels a day in world oil demand this year, according to people familiar with OPEC and its allies.
Vaccination programs are enabling governments across North America and Europe to reduce coronavirus restrictions and resume more normal economic activity. That will help pare global oil stocks—which at one point last year threatened to overwhelm the world’s ability to store them—to below their five-year average by the end of July for the 2015-19 period, the OPEC committee projected. In the U.S., oil and oil-product inventories have fallen more than expected in recent weeks.
“The bull recipe for the oil market is still intact: reviving demand, muted U.S. shale oil response together with controlled and restrictive supply from OPEC+, resulting in further declines in inventories and yet higher oil prices,” said
chief commodities analyst at Swedish bank SEB.
The OPEC cartel and its allies agreed Tuesday to press ahead with earlier plans to increase output by 450,000 barrels a day starting in July. Meanwhile, Saudi Arabia will continue to unwind its unilateral cuts of one million barrels a day that it put in place earlier this year.
“Demand growth is outpacing supply gains even with the agreed month-by-month OPEC+ production increases taken into account,” said
vice president of Macro Oils at consulting firm Wood Mackenzie. “Sticking to increases planned at the April meeting is what the market needs,” she added.
The prospect of as much as 1.5 million barrels a day of sanctioned Iranian oil returning to the market also suffered a blow Monday. Amid talks between Iran and Western powers in Vienna to revive a nuclear deal and possibly lift economic sanctions on Tehran, the International Atomic Energy Agency criticized Iran’s lack of cooperation in explaining the agency’s discovery of undeclared nuclear material at several locations in Iran since the fall of 2019.
The dimming prospect of Iran resuming its supply of oil also boosted oil prices on Tuesday, according to
commodity analyst at UBS Wealth Management.
—Summer Said contributed to this article.
Write to David Hodari at [email protected]
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