Oil climbs on demand optimism as market volatility takes a hit
Oil traded near the highest close in more than two years as optimism over burgeoning US-led demand outweighed concern that Iranian supplies will jump should sanctions on official exports be lifted.
West Texas Intermediate edged higher after settling at the strongest since October 2018 on Thursday. With prices stuck within a $10 range since March, market volatility has taken a hit, falling to its lowest level since August on the global Brent benchmark.
With the US economy recovering from the pandemic, more drivers are taking to the roads and stockpiles are drawing. Monday marks Memorial Day in the US, a holiday weekend that sees the start of the summer driving boom in the US.
That positive picture is being clouded, at least for now, by concerns that talks in Vienna between Tehran and world powers to revive a nuclear accord will pave the way for lifting US sanctions. Should an agreement be reached, Iranian crude shipments may pick up just as the Organization of Petroleum Exporting Countries and its allies relax collective curbs on exports. Meanwhile, the threat of new coronavirus variants and outbreaks in parts of Asia continues to menace consumption in a handful of regions.
“Traders are eyeing a bullish summer for oil even with Iran’s return to the party,” said Stephen Brennock an analyst at PVM Oil Associates Ltd. “This month can be summed in one word: hesitation,” he said.
Ministers from the OPEC alliance, led by Saudi Arabia and Russia, are set to meet on June 1 to assess the global market and their production policy. All but four of 24 analysts and traders surveyed by Bloomberg predicted they will ratify an 840,000 barrels a day increase scheduled for July, completing a three-part process to revive just over 2 million barrels this summer.
The market’s positive outlook is reflected in WTI’s longer-term spreads. The price of the US benchmark for December 2021 was as much as $5 a barrel higher than futures for the same month in 2022. The differential has expanded by almost $1 this week to hit the highest since mid-March.