By Elizabeth Low and Alex Longley
The markets structure has rallied, with the spread between the nearest two December contracts for West Texas Intermediate heading for the strongest close since 2019. That gauge indicates growing expectations for market tightness.
Crude’s rally to a two-and-a-half year high was aided by an indication that world powers and Iran aren’t likely to revive a 2015 nuclear deal any time soon. There was hope an agreement would be reached this month, but participants in the talks are set to head back to their capitals after meeting Wednesday, cooling speculation that the U.S. might soon lift sanctions on Iranian oil exports.
There continue to be signs of recovery in consumption, particularly in the U.S., where Memorial Day weekend trips boosted gasoline demand and air travel. The International Energy Agency says consumption may hit pre-pandemic levels in a year, speedier than previous estimates.
“The strong demand dynamics and likely delays in the Iran nuclear deal negotiations pushed oil prices above the much-watched $70 a barrel level,” said Norbert Ruecker, an economist at Julius Baer. “We expect prices to move well beyond $70 toward mid-year.”
The rally in market structure is rippling all the way along the futures curve. U.S. crude for December 2022 was about $3.50 more expensive than futures for a year later, the strongest for that gauge since October 2018 on a rolling basis. Still, the pandemic is casting a shadow over the demand picture for the second half of this year.
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