Oil steady as doubt cast on extended rally
Current data indicates the physical market is well supplied, according to oil broker PVM
London — Oil prices were little changed on Thursday after strong gains in the previous two sessions on expectations that fuel demand will surge later this year while the main producers maintain tight supply.
Brent crude futures were up 12c at $71.47 a barrel by 9.52am GMT after touching their highest since September 2019 at $71.99. The international benchmark gained 1.6% on Wednesday.
US. West Texas Intermediate crude futures rose 8c to $68.91. Prices rose as high as $69.40, the strongest since October 2018, after gaining 1.5% in the previous session.
The consensus among market forecasters, including Opec and its allies within the wider OPEC+ group of producers, is that oil demand will exceed supply in the second half of the year.
OPEC+ data shows that by the end of the year oil demand will be 99.8m bbl/day versus supply of 97.5m bbl/day.
This rebalancing will be led by resurgent demand in the US and China, the world’s two biggest consumers of oil, and the UK as it emerges from Covid-19 lockdowns.
“The US driving season is a period that sees higher-than-normal fuel consumption. UK traffic is now sitting above pre-pandemic levels,” CBA commodities analyst Vivek Dhar said in a note. “We continue to see the oil demand recovery led by the US, Europe and China.”
US crude oil inventories fell by more than 5m bbl last week, according to two market sources, who cited American Petroleum Institute figures on Wednesday.
OPEC+ agreed on Tuesday to continue with plans to ease supply curbs through July.
The OPEC+ meeting lasted 20 minutes, the quickest in the grouping’s history, suggesting strong compliance among members and the conviction that demand will recover once the Covid-19 pandemic shows signs of abating.
A slowdown in talks between the US and Iran over the latter’s nuclear programme has also reduced expectations for a return of Iranian oil supplies to the market this year.
The EU envoy co-ordinating the discussions said he believed a deal would be struck at the next round of talks, starting next week, though other diplomats cautioned that difficulties remain.
PVM Oil associates cast doubt on an extended rally as the contract-for-difference curve indicates a contango structure, meaning that current prices are lower than future ones in the physical market. Oil futures are in the opposite structure, known as backwardation.
“This hints at a well-supplied physical market,” PVM analyst Tamas Varga said in a daily note, adding that the way up to $80 a barrel will be paved with temporary setbacks.
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