Oil rises as OPEC fuels demand hopes amid new COVID-19 worries

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FILE PHOTO: Crude oil storage tanks are seen in an aerial photograph at the Cushing oil hub
FILE PHOTO: Crude oil storage tanks are seen in an aerial photograph at the Cushing oil hub in Cushing, Oklahoma, U.S. April 21, 2020. REUTERS/Drone Base/File Photo

June 29, 2021

By Jessica Resnick-Ault

NEW YORK (Reuters) – Oil prices rose on Tuesday as broad hopes for a demand recovery persisted, fueled by comments from OPEC’s secretary general, overshadowed travel curbs due to new outbreaks of the highly contagious Delta variant of the coronavirus.

Brent crude futures were up 33 cents, or 0.4%, at $75.01 a barrel by 11:49 a.m. EDT (1649 GMT), having slumped by 2% on Monday.

U.S. West Texas Intermediate (WTI) crude futures rose 28 cents, or 0.4%, to $73.19 after a 1.5% retreat on Monday.

Demand in 2021 was expected to grow by 6 million barrels per day (bpd), with 5 million bpd of that in the second half, OPEC Secretary General Mohammad Barkindo told Tuesday’s meeting of the Joint Technical Committee of OPEC+, an alliance made up of OPEC states, Russia and their allies.

“The current ‘wild card’ factor is the ‘Delta Variant’ of the pandemic that is resulting in rising cases and renewed restrictions in many regions,” he said in a speech, a copy of which was seen by Reuters.

The producer group is expected to gradually ramp up production in response to demand.

“Barkindo’s comments suggest that OPEC is not going to raise production quickly enough to keep up with demand,” said Phil Flynn, senior analyst at Price Futures Group in Chicago.

OPEC’s demand forecasts show that in the fourth quarter global oil supply will fall short of demand by 2.2 million bpd, giving the producers some room to agree to add output.

The market expects the rollout of vaccination programmes to brighten the demand outlook, even as the new variant rises, analysts said.

“The narrative of the past few months has not changed: the war against the virus is being gradually won, the global economy and oil demand are recovering,” said PVM Oil analyst Tamas Varga.

“Oil supply is being effectively managed. Therefore dips are probably viewed by ardent bulls as attractive buying opportunities.”

“The market has grown relatively immune to COVID-19 developments, but if lockdowns occur in larger demand centres in Asia, we may see the market’s nonchalance abate.”

Spain and Portugal, favourite summer holiday destinations for Europeans, imposed new restrictions on unvaccinated Britons on Monday, while Australians also faced tighter curbs owing to flare-ups of the virus across the country.

Graphic: Global oil supply deficit in 2021 https://fingfx.thomsonreuters.com/gfx/mkt/xegpbzydapq/Pasted%20image%201624878145906.png

Investors will be looking to the latest U.S. inventory data for cues on the demand outlook. Crude stocks are likely to have extended their fall for a sixth straight week while gasoline stocks are also expected to have declined, a Reuters poll showed ahead of industry data from the American Petroleum Institute at 4:30 p.m. EDT (2030 GMT), and an official report on Wednesday.

(Additional reporting by Noah Browning and Sonali Paul; Editing by Marguerita Choy and David Goodman)