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Oil pops 50% in 2021, best half since US inventory plunge in 2009
Steve Sutherlin Petroleum News
Alaska North Slope crude moved higher by 14 cents June 30 to close at $75.24, while West Texas Intermediate jumped 49 cents to close at $73.47 and Brent lifted 37 cents to close at $75.13.
The month of June ended on an up note for oil prices, capping a remarkable recovery that saw oil turn in monthly and quarterly gains on the way to rising 50% so far in 2021, its best half since 2009.
U.S. commercial crude oil inventories - excluding the Strategic Petroleum Reserve - fell by 6.7 million barrels for the week ended June 25, the U.S Energy Information Administration said June 30, adding that at 452.3 million barrels, inventories stand about 6% below the five-year average for this time of year. It was the sixth straight week of drawdowns, spurred by demand for motor vehicle fuel.
A June 30 Bloomberg report said that over the last four weeks total stockpiles, including the Strategic Petroleum Reserve, fell at a rate of 1.15 million barrels a day, the largest four-week decline on a rolling basis in EIA data going back to 1982.
ANS, WTI and Brent ended June just below the peak post-COVID levels set at the end of the previous week. On Friday June 25, ANS closed at $75.88, up 66 cents, WTI jumped 75 cents to $74.05 and Brent broke the $76 mark to close at $76.18 - up 62 cents.
But prices dropped sharply on concerns over COVID-19 case spikes in Europe and Asia as the new week began June 28, taking ANS and Brent below $75 and taking WTI below $73.
OPEC+ meets on production strategy The indexes staged a modest recovery June 29 after optimistic remarks about the market from the Organization of the Petroleum Exporting Countries at its meeting of the Joint Technical Committee of the Declaration of Cooperation of OPEC and non-OPEC oil producing countries.
“The overall brighter picture in relation to the pandemic recovery efforts has led to significantly improved oil market conditions and prospects for future growth,” OPEC Secretary General Mohammad Sanusi Barkindo told the committee.
The June OPEC Monthly Oil Market Report projected global oil demand to rise by 6 million barrels per day in 2021, while world economic growth is forecast at 5.5 % in the same period.
The joint technical committee meeting is the lead-in to the 31st Meeting of the Joint Ministerial Monitoring Committee scheduled for June 30, and the 18th OPEC and non-OPEC Ministerial Meeting scheduled for July 1, which will decide whether to increase production in August.
The most likely outcome, according to analysts, is for an increase of 500,000 bpd.
The JMMC was delayed however, to allow OPEC+ to allow more time for a compromise before the ministerial meeting, Bloomberg reported June 30.
Reportedly, OPEC+ power players Saudi Arabia and Russia were at odds in preliminary discussions, with the Saudis urging restraint, and the Russians calling for a more aggressive boost in supply.
In a similar standoff in December, the group decided on a modest increase in production.
Both meetings were rescheduled to be held on July 1.
In early trading ahead of the meetings, oil prices responded positively. At Petroleum News press time early July 1, WTI had vaulted 2.95% and Brent had gained 2.36%.
The ministerial meeting may consider extending the OPEC+ overall supply pact beyond April 2022, due to “significant uncertainties” and the risk of an oil glut next year, sources within the group told Reuters.
OPEC+ is moving towards adding approximately 2 million bpd of oil to the market between August and December, an OPEC+ source told Reuters, according to a July 1 report.
Supply deficit seen Despite OPEC+ concerns about a glut in 2022, many analysts are convinced that pent-up demand may overwhelm the ability of suppliers to close the gap.
“There’s a sense that supply is more narrow, and it may not be enough to cover the pent-up demand; that’s what’s driving the current boost in price,” Regina Mayor, global head of energy at KPMG, told CNBC’s Trading Nation June 29.
“Most analysts are predicting that the world will return to over 100 million barrels per day of demand by at least the end of 2022 and we’re seeing a surge in short-term demand in the U.S. and China,” she said. “What’s coming home to roost is the underinvestment that the sector has gone through - 30% lower than five years ago in terms of oil and gas investment and $250 billion of underinvestment in 2020 alone.”
Goldman Sachs Commodities Research said more production is needed from OPEC+ to balance the market by 2022 as supply risk looms elsewhere, Reuters reported June 30.
Oil demand is likely to rise by an additional 2.2 million bpd by year-end, leaving a 5 million bpd supply shortfall - more than what Iran and shale producers can bring online, Goldman said.
“While a large new infection wave could slow the market rebalancing, we expect OPEC+ to remain tactical in its output hikes with downside risks to global supply elsewhere pointing to a more robust outlook for crude and the upstream sector than petroleum products and the downstream sector,” Goldman said.
- STEVE SUTHERLIN
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