Oil Hits Highest Since October 2018 as OPEC+ Flags Tight Market

Alex Longley
·2 min read

(Bloomberg) -- U.S. crude futures climbed to the highest in more than two and a half years after the OPEC+ alliance forecast a tightening global market ahead of a production policy meeting.

West Texas Intermediate rose as much as 3% from Friday’s close to $68.31 a barrel. Global benchmark Brent topped $70 earlier Tuesday, a level it has failed to hold for a sustained period since 2019.

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 markets can absorb additional barrels despite the prospect of more supply from Iran should a nuclear deal be revived. While Covid-19’s surge in parts of Asia, most notably India, is threatening demand, OPEC+’s Joint Technical Committee forecast crude stockpiles will fall by at least 2 million barrels a day from September through December.

“Balances look really tight,” Fereidun Fesharaki, chairman of consultant FGE, said in a Bloomberg TV interview. “The demand growth is pretty OK, the OPEC+ discipline is very good, inventories are going down. If there is no Iranian shadow on the market, prices could hit $75-$80 by the middle of the third quarter.”

The market structure was also showing signs of strength on Tuesday. The spread between the nearest two December contracts -- a favored trade for hedge funds to express views on the oil market -- was in its biggest bullish backwardation since mid-March. The structure indicates tight supply.

As OPEC+ ministers prepare to gather online, Iran’s supply remains critical. Russian and Iranian officials involved in talks to revive a 2015 nuclear accord that would lift sanctions on the Persian Gulf nation’s oil exports, said on Monday that there were still complicated issues to resolve.

An Iranian government spokesman said Tuesday that there is “no major obstacle” in the negotiations between the country and world powers.

Iran’s comeback “will occur in an orderly and transparent fashion,” without upsetting 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 crude output could return rapidly.

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