To stop the rally in the oil market - this is a difficult task at the moment, as there will be more new factors that generate demand for crude before the summer season. It seems that everything is heading towards the tourist traffic with as few obstacles as possible.
Crude oil appears to have risen in price on Wednesday, extending gains from the previous session, amid signs of strong demand for fuel in Western economies. President Joe Biden's administration is about to form expert working groups with Canada, Mexico, the European Union and Britain to determine how best and safely to resume travel after 15 months of pandemic-related restrictions.
The CDC, a U.S. government agency that is part of the health department, has already eased air travel restrictions for more than 110 countries and territories. For its part, the EIA (Energy Information Administration), forecast a decline in global oil inventories in the second half of 2021. The API, incidentally, has already reported that in the week ended June 4, US crude inventories fell by 2.1 million barrels. While there is a lot of talk about a likely oil injection from Iran, US Secretary of State Antony Blinken said that even if Washington reaches a nuclear agreement with Iran, hundreds of US sanctions on Tehran will remain in place.
OPEC forecasts oil demand to reach 99.74 million barrels per day in the fourth quarter of 2021, which could mark a return to pre-pandemic levels. In the fourth quarter of 2019, demand was 100.79 million b/d. Meanwhile, EIA data shows that as recently as the fourth quarter of 2021 and the first quarter of 2022, demand will exceed supply by about half a million barrels per day. It is not until the second quarter of 2022 that the oil market is expected to balance. This, in turn, may mean that producers may want the highest possible price per barrel until equilibrium is reached. It is therefore possible that the current holiday season, if it gets into full swing, could bring another increase in oil prices, and the level of $73-75 per barrel of WTI is not out of the question.
This morning WTI oil was trading above $70 per barrel, its highest level since October 2018. Brent crude, on the other hand, was above $72.5 per barrel, and was trading at its highest level since May 2019.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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