Oil prices fell on Friday, but headed for a third week increase on expectations of a recovery in fuel demand in Europe, China and the United States as rising vaccination rates led to easing of pandemic restrictions.
Investors expect Brent crude oil prices to reach $80 a barrel this summer. The recent oil market rally is believed to continue as vaccines boost global economic activity and demand for commodities.
Brent prices reached $72.93 a barrel this week, the highest in more than two years, supported by strong demand expectations.
Brent futures were trading at $72.21 a barrel on Friday, while West Texas Intermediate (WTI) crude was around $70 a barrel.
Brent crude futures fell 4 cents, or 0.06%, to $72.48 a barrel at 0658 GMT after closing at the highest level since May 2019 on Thursday.
US West Texas Intermediate (WTI) crude futures also fell 4 cents, or 0.06%, to $70.25 after climbing 0.5% on Thursday, the highest since October 2018.
Brent is heading towards gains of 0.8% and WTI of 0.9%.
Rising vaccination rates are leading to higher activity in the US and Europe, and global demand is estimated to have increased by 1.5 million bpd last month to 96.5 million bpd. It expects the recovery in oil demand to continue, and global demand is thought to reach 99 million barrels per day in August.
Saudi Arabia, the world’s largest oil exporter, is announcing that it will supply its Asian customers with all of its crude for July shipment. News is circulating in Asia that all the voluntary production cuts that appear to have temporarily pushed down Saudi Arabian oil prices have been resolved.
Still, the response is modest and price action is bullish. This shows that the physical market is easily absorbing extra Saudi production and global demand is strong and climbing.
Gasoline stocks in the United States, the world’s largest oil consumer, rose by 7 million barrels in the week of June 4, and distillate stocks were 4.4 million barrels, according to data from Energy Information.
Data showing that road traffic in most of North America and Europe is returning to pre-COVID-19 levels is encouraging. The jet fuel market is showing signs of improvement, with flights in Europe increasing by 17% over the past two weeks.
Iran and global powers have been negotiating since April to lift vital sanctions that cut oil exports and seriously damage Iran’s economy.
Slow progress in negotiations on the Iran nuclear deal is also putting pressure on oil supplies and support prices.
However, investors are relieved that the potential recovery in Iranian exports will take time and is not expected to affect prices at this stage due to strong demand growth.
US Secretary of State Antony Blinken said on Tuesday that he predicts hundreds of US sanctions against Tehran will remain in effect even if Iran and the US return to the nuclear deal.
Overall, the recovery in global economic growth and hence oil demand is expected to gain momentum in the second half. While there exists both OPEC+ upstream and refinery downstream excess capacity, it is expected that OPEC+ to fall behind the demand rebound.
