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Oil hit a 32-month high on a bullish cocktail of factors

Issac John /Dubai
issacjohn@khaleejtimes.com Filed on June 14, 2021
The Paris-based body expects consumption to rebound by 5.4 million barrels per day (bd) this year as vaccines are rolled out and economies reopen. — File photo

Brent crude jumps 1%, touching $73.52 per barrel, its highest since April 2019. US crude climbs 1% higher to $71.50, its highest level since October 2018


Oil hit a 32-month high on a bullish cocktail of rising demand, summer maintenance and a vaccination breakthrough.

The rally was further spurred by vaccine-boosted demand expectations for Europe and the US, and fading confidence about a quick return of Iranian crude supply.

Brent crude climbed on Monday.

Brent crude, the industry benchmark, jumped one per cent on Monday, touching $73.52 per barrel, its highest since April 2019. US crude also climbed one per cent higher to $71.50, its highest level since October 2018.

Rystad Energy’s Lefteris Karagiannopoulos said the freedom of movement of people is scaling up in the US and Europe in particular, where a softening of Covid-19 restrictions has boosted road and aviation traffic.

“The easing of border restrictions, particularly in Europe, has helped boost international aviation, which is now at about 38 per cent versus pre-Covid-19 levels, versus 35 per cent last week,” Rystad Energy said.

Iran’s foreign ministry said Monday there was “very little time left” for world powers to resolve outstanding differences to revive a 2015 nuclear deal, even though an agreement was in place to remove sanctions on the country’s energy sector. Iran goes to the presidential elections this week.

There were expectations a deal to lift Iranian oil sanctions would be in place ahead of the vote, said Giovanni Staunovo, a commodity analyst at UBS Group AG. “That seems not to be the case anymore.”

On Friday, the International Energy Agency (IEA) predicted that the world’s demand for oil is expected to rebound to pre-pandemic levels by the end of 2022.

The Paris-based body expects consumption to rebound by 5.4 million barrels per day (bd) this year as vaccines are rolled out and economies reopen. Consumption declined by a record 8.6 million bd in 2020 as the coronavirus pandemic took hold.

It expects a further 3.1 million bd increase in 2022, to average 99.5 million bd with an increase at the end of the year that will surpass the level of demand before the Covid pandemic.

Countries outside the Organisation of Petroleum Exporting Countries and its allies group are expected to boost output by 1.6 million bd next year, to exceed 2019 levels.

While Opec+ countries will have 6.9 million bd of spare capacity even after lifting production by 2 million bd over the May-July period.

“Opec+ needs to turn on the taps to keep world oil markets adequately supplied,” the energy watchdog said, adding that rising demand and countries’ short-term policies contradict the call of the IEA to end new financing for oil, gas and coal in a stark report released last month.

On the supply side, heavy maintenance seasons in Canada and the North Sea are helping prices stay lofty. In June 2021, Rystad Energy estimates more than 330,000 bpd of oil and condensate supply is offline at Canada oil sands projects, and 370,000 bpd of supply offline in the North Sea, led by maintenance on major Forties blend fields such as Buzzard and partial maintenance at Johan Sverdrup in Norway.

Supply relief is also coming from Colombia, where civil unrest in the country has forced major operators to announce force majeure on their operations, with an estimated negative supply impact of up to 70,000 bpd in June 2021.

— issacjohn@khaleejtimes.com

author

Issac John

Editorial Director of Khaleej Times, is a well-connected Indian journalist and an economic and financial commentator. He has been in the UAE's mainstream journalism for 35 years, including 23 years with Khaleej Times. A post-graduate in English and graduate in economics, he has won over two dozen awards. Acclaimed for his authentic and insightful analysis of global and regional businesses and economic trends, he is respected for his astute understanding of the local business scene.





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