So far this week, crude has undergone a strong rally as optimism around rising fuel demand is growing, particularly in the west, though trading activity has remained muted. The U.S., China and Europe are rebounding strongly from the pandemic, and upbeat comments from OPEC+ and the International Energy Agency added to the positive outlook. The Covid-19 comeback across Asia and Latin America, however, is a reminder that the recovery is likely to be uneven and bumpy.
Nuclear talks between Iran and world powers, meanwhile, have been adjourned until next week as differences between Tehran and the U.S. delay the revival of a deal. The prospect of returning Iranian barrels is setting up a possible battle to supply the South Korean market with condensates.
“The majority expect further tightening of the oil balance, the price action over the past two trading sessions suggests,” said Tamas Varga, an analyst at PVM Oil Associates Ltd. “They believe that despite OPEC+’s decision to stick with the current plan and gradually increase production through July and possibly beyond the improvement in global consumption will better the rise in supply.”
Some of the biggest moves in recent days have come in the oil market’s structure. The much-watched spread between the nearest two December contracts has rallied to its strongest level since 2019 on a rolling basis, with a premium of more than $5 a barrel for WTI. That structure indicates tight supply.
Despite crude’s rally, holdings of ICE Brent futures contracts have fallen sharply in recent weeks. Total open interest on the global benchmark is near its lowest since December, and was overtaken by Nymex WTI for the first time since 2018 in recent days.
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