Oil rallies to 32-month high as rising demand emboldens bulls

Oil hit a 32-month high as the roll-out of coronavirus vaccines underpins an improved summer demand outlook in the US and Europe.

West Texas Intermediate rose 0.5 per cent after touching the highest level since October 2018, building on a run of three weekly gains. Americans are becoming increasingly comfortable meeting friends, going back to workplaces, and attending large-scale events, according to a CBS News survey, as US daily air travelers topped two million for the first time since the pandemic began.

The US benchmark is on course for a fifth quarterly advance, which would be the best run since 2010, as consumption improves while the Organization of Petroleum Exporting Countries and its allies ease supply curbs only gradually. Global oil demand will recover to pre-pandemic levels late next year, the International Energy Agency predicted last week, urging OPEC and its partners to keep markets balanced by tapping their plentiful spare production capacity.

Crude has digested a lot of incremental, bullish news over the past week, with the US and Europe reopening, according to Vandana Hari, founder of Vanda Insights. Prices could creep higher over the coming weeks but “at a more gradual pace,” with the market awaiting fresh momentum, Hari said.

Prices:

• WTI for July delivery climbed 0.5 per cent to $71.24 a barrel on the New York Mercantile Exchange at 7.05am in London.
  • Most-active prices traded as high as $71.32.
• Brent for August settlement rose 0.5 per cent to $73.05 a barrel on the ICE Futures Europe exchange.

While there signs of curbs being eased across the US and parts of Europe, the picture remains mixed. British Prime Minister Boris Johnson is preparing to delay his plan to lift England’s pandemic restrictions on June 21 amid a rapid rise in Covid-19 cases linked to the delta variant first identified in India.

Traders are also tracking talks in Vienna this week between Iran and world powers to revive a nuclear accord, potentially allowing US sanctions on the nation’s crude exports to be lifted. Iran’s Deputy Foreign Minister Abbas Araghchi has cast doubt on the chances of reviving the pact before citizens elect a new president on June 18. Ebrahim Raisi, the hardline cleric widely tipped to replace President Hassan Rouhani, said that he’ll continue the negotiations if elected, but he won’t treat them as a major national concern.

Investors remain optimistic about the scope for further gains, according to weekly data from the Commodity Futures Trading Commission. Money managers have boosted their WTI bets to the most bullish in about three years.

In another positive indicator, Brent’s prompt timespread was 64 cents a barrel in backwardation on Monday, a positive pattern in which near-term prices trade above those further out. That’s up from 38 cents a week ago.