Oil prices climbed to their highest since October 2018 on Friday, putting both benchmarks up for a fifth week in a row on expectations that demand growth will outstrip supply and OPEC+ will be cautious in returning more crude to the market from August onwards.
Global benchmark Brent futures rose 62 cents, or 0.8 percent, to settle at $76.18 a barrel, while United States West Texas Intermediate (WTI) crude rose 75 cents, or 1.0 percent, to $74.05.
Those were the highest closes for both benchmarks since October 2018 and put both contracts up over 3 percent for the week.
“Crude prices rallied on an improving demand outlook and over expectations the market will remain tight as OPEC+ is likely to only deliver a small boost to output at the July 1st ministerial meeting,” said Edward Moya, senior market analyst at OANDA.
All eyes are on the Organization of the Petroleum Exporting Countries, Russia and allies – together called OPEC+, and due to meet on July 1 to discuss further easing of their output cuts from August.
“The producer group has ample space to boost supply without derailing the drawdown in oil stocks, given the rosier demand outlook,” said Stephen Brennock of oil broker PVM.
On the demand side, the key factors OPEC+ will have to consider are strong growth in the US, Europe and China, bolstered by coronavirus vaccine roll-outs and economies reopening, according to analysts who said this was countered by rising COVID-19 cases and outbreaks in other places.
The prospect of sanctions on Iran being lifted and more of its oil hitting the market anytime soon has dimmed, with a US official saying serious differences remain over a range of issues over Tehran’s compliance with the 2015 nuclear deal.
The lack of an interim agreement between the United Nations nuclear watchdog and Iran on the monitoring of atomic activities is a serious concern that has been communicated to Tehran, US Secretary of State Antony Blinken said on Friday.
Iran has not responded to the UN nuclear watchdog on extending a monitoring agreement that expired overnight, the agency said on Friday, hours after Washington warned that not prolonging it would harm efforts to revive the 2015 Iran nuclear deal.
“If an Iran agreement is not reached by July 1, we anticipate OPEC+ returning to month-by-month quota setting and announcing a modest production increase for August at its meetings next week,” analysts at ClearView Energy Partners LLC said in a report.
Meanwhile, the number of US oil rigs, an early indicator of future output, fell by one to 372 this week, according to energy services firm Baker Hughes Co. Despite that small decline, the rig count gained 13 in June – its 10th monthly rise – and increased 48 in the second quarter, its third consecutive quarterly rise.