Oil prices rose to a two-week high on Tuesday after the United States lifted travel restrictions and other signs of a global post-pandemic recovery boosted the demand outlook, while supply remained tight.
Prices rallied after the US Energy Information Administration (EIA) in its Short Term Energy Outlook (STEO) on Tuesday projected retail petrol prices would decline over the next several months.
US President Joe Biden’s administration said it would use price forecasts in the STEO report to determine whether to release oil from the nation’s Strategic Petroleum Reserve (SPR).
Analysts said if the STEO had shown a huge rise in projected petrol prices, the Biden administration was likely to release lots of oil from the SPR quickly, which would have depressed prices.
Global benchmark Brent crude futures rose $1.35, or 1.6 percent, to settle at $84.78 a barrel, while US West Texas Intermediate crude rose $2.22, or 2.7 percent, to settle at $84.15.
They were the highest closes for both benchmarks since October 26.
The price of Brent has gained over 60 percent this year and hit a three-year high of $86.70 on October 25, supported by recovering demand and supply restraint by the Organization of the Petroleum Exporting Countries and allies, known as OPEC+.
“The EIA STEO gives President Biden plenty of cover to do nothing, and claim he is waiting for bearish forecast to play out,” said Bob Yawger, director of energy futures at Mizuho in New York.
In the STEO, the EIA projected average prices for retail regular-grade petrol would decline from $3.32 per gallon in November to $3.16 in December and $3.00 in the first quarter of 2022.
OPEC+ added 400,000 barrels per day (bpd) of crude oil to global supply at last week’s OPEC+ meeting. President Biden wanted it to add more. OPEC+ is scheduled to add 400,000 bpd a month through June 2022, Yawger said.
“Any release from the US SPR, although it would likely have a temporary bearish effect on prompt prices, is not a lasting solution for an imbalance between supply and demand,” said Louise Dickson, senior oil markets analyst at Rystad Energy.
Global oil spare production capacity could diminish next year as air passengers return to the skies, removing an important cushion that the market is currently enjoying, Saudi Aramco Chief Executive Amin Nasser said.
Travellers took off for the US again, while the passage of Biden’s $1 trillion infrastructure bill and better-than-expected Chinese exports helped paint a picture of a recovering global economy.
JPMorgan Chase said global demand for oil in November was already nearly back to pre-pandemic levels of 100 million bpd, following last year’s collapse.
In India, fuel demand rose in October to a seven-month peak, with petrol sales surging to an all-time high.
Despite a tight global market, analysts forecast US crude inventories rose for a third straight week, possibly helping to cap further gains in prices.
The first of this week’s two supply reports, from industry group the American Petroleum Institute, is due later Tuesday.