Brent Oil Tops $70 as OPEC+ Flags Tightening Market Before Meet

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Jun 01 2021, 5:17 AMJun 01 2021, 7:49 AMJune 01 2021, 5:17 AMJune 01 2021, 7:49 AM

(Bloomberg) -- Brent oil advanced above $70 a barrel after the OPEC+ alliance forecast a tightening global market ahead of a production policy meeting.

Futures in London rose as much as 1.3% after posting a second straight monthly gain. The oil glut built up during the pandemic has almost gone and stockpiles will slide rapidly in the second half of the year, according to an assessment of the market from an OPEC+ committee. The coalition is expected to ratify a scheduled output increase for July when it meets later Tuesday.

A robust recovery in the U.S. and Europe has given OPEC+ the confidence that global markets can absorb additional barrels, despite a Covid-19 comeback in parts of Asia and the prospect of more supply from Iran should a nuclear deal be revived. OPEC’s Joint Technical Committee forecast stockpiles will fall by at least 2 million barrels a day from September through December.

“There’s some confidence right now improving demand should be able to absorb what could be an additional 2 million barrels a day from Iran, if it materializes,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. “Demand from the U.S. has been driving the global consumption recovery.”

Prices
Brent for August settlement rose as much as 1.3% to $70.25 a barrel on the ICE Futures Europe exchange before easing slightly to $70.15 at 10:18 a.m. Singapore time. Front-month futures rose 3.1% in May. West Texas Intermediate for July climbed about 2% to $67.61 on the New York Mercantile Exchange from the Friday close. There was no settlement Monday due to a U.S. holiday.

The prompt timespread for Brent was 38 cents in backwardation -- a bullish structure where near-dated prices are more expensive than later-dated ones. That compares with 9 cents at the start of last week.

Iran’s comeback “will occur in an orderly and transparent fashion,” causing no upset to the stability that other OPEC+ nations have toiled to achieve, OPEC Secretary-General Mohammad Barkindo said at the Monday meeting. However, Iranian Oil Minister Bijan Namdar Zanganeh told reporters in Tehran that the nation could bring back crude output rapidly.

Asian refiners, meanwhile, are grappling with what’s expected to be a brief period of weak profits amid the demand-sapping virus resurgence. Complex refining margins in Singapore, a proxy for the region, have slumped since the end of April, but accelerating vaccination rates are expected to aid demand.

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