Prices posted a fourth straight weekly gain as signs of a global demand recovery and supply discipline among producers encouraged investors. Futures in New York rose 1% last week. Strong US demand growth is being passed on to Europe and emerging markets, where India is also starting to show improvements.
Crude posted its third straight weekly rise on improving demand, with the International Energy Agency warning the market will need extra supply next year. New York futures rose 1.9% last week, extending their rally to the highest settlement since October 2018. The IEA said that OPEC and its allies would need to lift output to keep the market adequately supplied, though the agency predicted demand wouldn’t reach pre-virus levels until late 2022. Meanwhile, road traffic in the US and much of Europe is essentially back to levels seen before the pandemic.
Futures rose towards $72 a barrel on Friday, trading close to a two-year high as OPEC+ supply discipline and recovering demand countered concerns about the pace of the COVID-19 vaccination rollout around the globe. Brent crude settled at $71.89 a barrel after touching $72.17, its highest since May 2019. The session high for West Texas Intermediate was $69.76, its highest since October 2018. OPEC and allies said they would stick to agreed supply restraints. US crude oil inventory declines extended in the week ended May 28th amid rising refinery demand and lower production.
It was a historic week for the oil industry, potentially marking a turning point, at least for the corporate strategies of the oil majors. More curbs on the supply side added some bullish sentiment to the market, although the impacts on the fundamentals are not necessarily going to unfold in the near term. But in the wake of the enormous legal and corporate governance blows to the oil majors, more than a few analysts spoke about growing odds of a supply crunch in the years ahead. Royal Dutch Shell lost a landmark legal case in a Dutch court, which, if it stands, will require 45% cuts in GHG emissions by 2030. The case is seen as a warning sign for the rest of the oil industry, signaling legal exposure to emissions.
Prices had their worst week in at least a month as the market contends with a potential deal that could lift US sanctions against Iranian crude. WTI futures in New York rose the most since mid-April on Friday, tracking a broader market rally that buoyed prices during most of the trading day. Nonetheless, crude benchmarks couldn’t shake off the specter of millions of barrels a day of Iranian crude returning to the market, with Brent futures in London posting the most significant weekly decline since March.
Prices have been stuck in a range lately, with optimism around global inventories rebalancing being offset by constant reminders that parts of the world remain far from a full recovery from the pandemic. The International Energy Agency said last week that the global glut that built up last year has cleared. However, the agency also lowered its demand estimates due to the virus’ resurgence in India.
The struggle between the spreading pandemic in the less developed world and the revival of economic activity in the US, Europe, and China continues to keep prices volatile as they move steadily higher. Last week, futures posted another gain as expectations for growing economic activity in the US and Europe fueled optimism around more robust summer demand, with New York prices advancing 2.1%. Fuel sales in the UK rose to the highest since the pandemic began, and in the US, refineries are running at their highest rate since the pandemic began as they gear up for the summer driving season. Declining crude inventories and progress in reopening the US economy are boosting oil prices.
Prices rose last month with much positive economic data and signs of a fuel consumption revival in key economies offsetting a worsening coronavirus crisis elsewhere. Futures in New York rose last week, extending their monthly gain to 7.5%. The near-certain likelihood of higher fuel consumption in the US, China, and the UK has brightened the overall demand outlook, even as a resurgent pandemic in India, Brazil, and Japan cloud those prospects. OPEC and its allies see world consumption rebounding by 6 million b/d this year, while Goldman Sachs says demand could post a record jump as vaccination rates increase.
Prices fell last week with spreading coronavirus cases in countries such as India tempering optimism around positive signs out of the US and Europe. Futures in New York rose the most in over a week on Friday but were unable to reverse a 1.6% weekly loss as the market weighed a global economic reopening that’s coming in fits and starts. The unprecedented oil inventory glut that amassed during the coronavirus pandemic is almost gone, underpinning a price recovery that’s rescuing producers but vexing consumers. Barely a fifth of the surplus that flooded into the storage tanks of developed economies when oil demand crashed last year remained as of February, according to the IEA.
Last week, oil prices saw their biggest weekly gain since early March as signs emerged of a recovery from the pandemic gaining traction in the US and China. Futures in New York advanced 6.4% last week, despite eking out a slight loss on Friday. On the heels of robust economic figures out of the US, data from China showed its gross domestic product climbed 18.3% in the first quarter from a year prior as consumer spending beat forecasts. In March, China’s refiners processed about 20% more crude than a year earlier, pointing to the strength of the country’s rebound. JPMorgan analysts forecast that Brent would hit $70 again, with a boost in US demand likely bringing OECD inventories back to normal sooner than expected.
