Oil advanced ahead of an OPEC+ policy meeting as traders expect rising demand to absorb a planned production increase from the group as well as any additional crude from Iran.
Futures in New York climbed past US$67 a barrel, putting crude on track for a second straight monthly gain. OPEC and its allies are expected to stick with a decision to boost output in July when the group gathers Tuesday, according to a Bloomberg survey last week. While rebounding demand is driving prices higher, the possibility of more barrels from Iran should a nuclear deal be revived is clouding the outlook.
“I’m really looking at what OPEC+ says about the period beyond the next two months and whether they indicate they’re positive about demand continuing to grow and that being able to absorb any more barrels from Iran,” said Ed Bell, an oil analyst at Dubai-based bank Emirates NBD PJSC.
“Our balances still point to a deficit of supply in the second half and that points to oil being about where it is now.”
Oil demand should rise by about 6 million barrels a day next year, according to a document prepared for an OPEC+ committee meeting today ahead of the full ministerial gathering tomorrow. Demand that’s set to exceed supply later this year could entice buyers to pull some 2 million barrels of crude a day out of storage in the fourth quarter, according to the document.
The consumption level and lower supply that OPEC+ sees from producers outside of the group may provide the slack the market needs to absorb more oil from Iran. Traders will be looking to hear the views of group leaders Saudi Arabia and Russia on the issue tomorrow.
Iran and world powers have resumed discussions that Russia’s envoy to the United Nations in Vienna said “should be final” in determining a path for the US easing sanctions in return for limits on the Middle Eastern country’s nuclear program.
The US, China and parts of Europe are driving robust demand recovery from the Covid-19 pandemic, despite a virus comeback across Asia. American gasoline stockpiles have declined and consumption gained in the lead up to the Memorial Day weekend, which heralds the start of the summer driving season and peak fuel demand.
Average retail prices for regular gasoline in the US rose to US$3.046 per gallon, according to American Automobile Association data for Sunday, the most recent data provided. That’s the highest since October 2014, according to the AAA.
Iran will act swiftly to increase oil production and has no concern about finding buyers for its crude, Oil Minister Bijan Namdar Zanganeh told reporters in Tehran Monday. He said the country could reach 6.5 million barrels a day of output. Most analysts put Iran’s maximum capacity at about 3.8 million barrels a day before the U.S. under the administration of Donald Trump tightened sanctions on the country’s energy industry.
When OPEC+ meets on Tuesday, investors will also be looking for any clues on the next stage of the group’s supply policy amid growing expectations for demand to accelerate through the end of the year. As for July, all but four of 24 analysts and traders surveyed by Bloomberg predicted the alliance would ratify a planned increase of 840,000 barrels a day.
A measure of China’s manufacturing industry, meanwhile, was little changed in May as soaring input prices weighed on smaller factories, suggesting the economy’s recovery momentum might have peaked for now. Indian data later Monday is forecast to show the nation’s gross domestic product during the first quarter posted a slight pickup in growth year-on-year.
