ANS closes above $70
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OPEC+ sticks to 350,000 bpd increase in June citing China and US recovery
Alaska North Slope crude closed above the psychologically important $70 per barrel mark June 2 for the first time since the pandemic hit, notching a new post-COVID high of $70.55, a gain of 92 cents. Brent closed at $71.55, a gain of $1.10, and West Texas Intermediate closed at $68.83, up $1.11.
Brent led the way above $70 June 1, gaining 60 cents to close at $70.25, while ANS jumped $1.58 to close at $69.63, and WTI added $1.40 to close at $67.72. It was the first time Brent closed above the $70 per barrel mark for two consecutive days in more than two years.
Prices extended the gains of the previous week on signs of strong demand in the United States and Europe, and after the Organization of the Petroleum Exporting Countries and its allied producing nations kept intact their plan to gradually increase oil production through July.
The 17th OPEC and non-OPEC Ministerial Meeting concluded June 1 with reaffirmation of the group’s prior commitments to gradually return 2 million barrels per day of production adjustments to the market, with the pace being determined according to market conditions, OPEC said in a release.
In May, OPEC+ added an additional 350,000 bpd to production, and it will add another 350,000 bpd in June, as confirmed at its June 1 meeting. July output is scheduled to be increased by 450,000 bpd.
OPEC said overall conformity to the production adjustments by the participating countries in the Declaration of Cooperation was 114% in April (including Mexico).
China, US lead recoveryChina and the United States are fueling the growth prospects for the year, with China’s economy on course to expand by 8.5%, while the U.S. economy is expected to expand by 6.2%, Mohammad Sanusi Barkindo, OPEC Secretary General said in remarks prior to the June 1 meeting.
Despite a second wave of COVID-19 in India, India’s economy is still expected to grow by 9.7%, he said.
The Euro-zone, thanks to a gradual easing of strict lockdowns, should benefit from pent-up consumer demand and the beginning of the summer holiday season, Barkindo said, adding that growth in the Euro-zone this year is forecast at 4.2%.
Despite positive developments on the demand front, Barkindo cautioned against complacency.
“As we know from experience over the past year, COVID-19 is a persistent and unpredictable foe, and vicious mutations remain a threat to both human health and the recovery,” he said, adding that many leading economies have deployed record levels of fiscal and monetary stimulus, debt levels have soared, and inflation is a risk to the recovery.
“Month-on-month, the actions of the Declaration of Cooperation continue to support the rebalancing process and have helped reduce the global supply by more than 2.9 billion barrels since May 2020,” he said.
The 18th OPEC and non-OPEC Ministerial Meeting is scheduled for July 1.
Technical signals bullishCrude prices have broken the downtrend dating back to the all-time high, buoyed by growth optimism and inflation concerns, according to Christopher Vecchio, DailyFX senior currency strategist.
“Crude oil prices have started to experience greater topside traction in recent days, breaking out from the symmetrical triangle consolidation while sustaining an earlier bullish move above the descending trendline from the July 2008 (all-time high) and June 2014 highs,” Vecchio said in a June 2 release. “The technical structure is bullish, through and through.”
Crude prices have risen to their highest level since October 2018, and more gains may be ahead, he said.
The fundamental backdrop has brought clarity in recent days, Vecchio said, adding that it appears that both Iran and the United States are coming close to agreeing to a revised Joint Comprehensive Plan of Action, however, that development is largely priced-in as market participants anticipate a significant supply of Iranian oil to join global markets.
Global demand increasing at a torrid pace, and the OPEC+ announcement that production cuts will remain keep the near-term supply-demand imbalance as viable catalysts for more gains in crude oil prices, he said.
“All-in-all, this has been a positive mix of news for crude oil prices,” Vecchio said. “In fact, taking a look at measures of volatility, it seems that the current mix of news has traders feeling less uncertain about the future - typically a positive omen for oil markets.”
Bullish Bank of AmericaBank of America thinks the oil rally has room to run in 2021.
“Demand is ramping up very quickly because everybody’s driving, and we have the reopening of Europe, which is really starting to happen,” Francisco Blanch, global commodities and derivatives strategist at Bank of America said in a June 2 CNBC interview. “India seems to have hit an inflection point, in terms of cases, which in my mind could mean you also get a return of mobility.”
Long-term, prices likely will go even higher, Blanch said.
“We think in the next three years we could see $100 barrels again, and we stand by that. That would be a 2022, 2023 story,” Blanch said. “Part of it is the fact we have OPEC kind of holding all the cards, and the market is not particularly price responsive on the supply side and there is a lot of pent-up demand. ... We also have a lot of inflation everywhere; oil has been lagging the rise in prices across the economy.”