Oil prices surged to the highest level in more than two years on Tuesday, as investors awaited a meeting of the Organization of the Petroleum Exporting Countries and its allies that will decide on production levels.
Investors are optimistic that oil demand is improving as economies recover from the coronavirus pandemic and a dwindling supply glut may mean the market can absorb additional supply.
West Texas Intermediate crude for July delivery
climbed $2.26, or 3.4%, to $68.58 a barrel on the New York Mercantile Exchange. On a continuous basis
prices were hovering at a level not seen since mid-October 2018, according to FactSet. Prices hit their highest since Oct, 29, 2018, on Thursday.
The August Brent contract
which is now the front month, rose $1.82, or 2.6%, to $71.14 a barrel, a level not seen since November 2018 when measured on a continuous basis, according to Dow Jones Newswires. On Friday, expiring July Brent crude finished at $69.63 a barrel on ICE Futures Europe, the highest settlement since March 11, according to Dow Jones Market Data.
Prices are rallying after the Organization of the Petroleum Exporting Countries’s technical committee on Monday confirmed forecasts for a rebound of six million barrels a day in world oil demand this year. News reports said the Joint Ministerial Monitoring Committee recommended Tuesday that OPEC+ stick to its plan to allow production to further rise in July, following planned increases in May and June, sticking to a timeline for relaxing curbs on output.
“The producers agreed back in April to add around 2 million barrels a day by July, a commitment they are expected to stick to,” said Marios Hadjikyriacos, investment analyst at XM.com, to clients in a note.
“Oil prices are trading higher since that announcement, which will only make them more confident that the market can absorb some targeted production increases. The reaction today will depend mainly on what they signal about future supply increases, beyond what’s already been agreed,” Hadjikyriacos added.
The “oil accumulated during the pandemic months is almost gone, and the second half of the year could see a sharp decline in oil reserves according to OPEC’s latest forecast, a decline that would comfortably surpass the 2021 average and create the need for extra oil pumping,” noted Ipek Ozkardeskaya, senior analyst at Swissquote.
The analyst said the end of COVID-19 lockdown measures and increased economic activity, plus improved prospects for global travel, should boost global oil demand.