U.S. crude futures climbed to the highest in more than 2 1/2 years after the OPEC+ alliance forecast a tightening global market, while international efforts to revive a nuclear deal with Iran were yet to reach a breakthrough.
West Texas Intermediate rose as much as 3.2% from Friday’s close to $68.42 a barrel, while global benchmark Brent topped $70, a level it has failed to hold for a sustained period since 2019.
The oil glut built up during the coronavirus pandemic has almost gone and stockpiles will slide rapidly in the second half of the year, according to an assessment of the market from an OPEC+ committee. The coalition is expected to ratify a scheduled output increase for July when it meets later on Tuesday.
Traders also continue to follow the progress of negotiations between Tehran and world powers to revive the 2015 nuclear agreement, paving the way for increased oil supplies from Iran. The country said it hopes to fully reactivate the deal before the end of the government’s term in August, raising the prospect that a solution may not be found in the current round of talks in Vienna.
A robust economic recovery in the U.S. and Europe has given OPEC+ the confidence that markets can absorb additional barrels. Although Covid-19’s renewed surge in parts of Asia is threatening demand there, OPEC+’s Joint Technical Committee sees crude stockpiles falling by at least 2 million barrels a day from September through December. The later a deal with Iran is signed, the greater the chances of oil-market tightness over the Northern Hemisphere summer.
“The demand growth is pretty OK, the OPEC+ discipline is very good, inventories are going down,” Fereidun Fesharaki, chairman of consultants FGE, said in a Bloomberg television interview. “If there is no Iranian shadow on the market, prices could hit $75-$80 by the middle of the third quarter.”
The market structure was also showing signs of strength on Tuesday. The spread between WTI’s nearest two December contracts — a favored trade for hedge funds to express views on the oil market — was in its biggest bullish backwardation since mid-March. That structure indicates tight supply.
As OPEC+ ministers prepare to gather online, Iran’s supply remains critical. Its comeback “will occur in an orderly and transparent fashion,” without upsetting the stability that other OPEC+ nations have toiled to achieve, OPEC Secretary-General Mohammad Barkindo said at Monday’s committee meeting. However, Iranian Oil Minister Bijan Namdar Zanganeh told reporters in Tehran that crude output could return rapidly.