The price of oil was on course Tuesday to close above $70 a barrel for the first time in two years on investors’ optimism that improving oil demand and a dwindling supply glut may mean the market can absorb any additional supply from OPEC and its allies.
Brent crude, the international energy benchmark, rose 2.1% to $70.77 a barrel. It is on track for its highest close since May 2019. West Texas Intermediate futures gained 2.8% at $68.18 a barrel. The U.S. gauge on Tuesday crossed its highest level since October 2018.
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, according to people familiar with OPEC and its allies. Ministers from those countries are scheduled to meet with non-cartel allies Tuesday to discuss plans to further relax ongoing production curbs during June and July.
Vaccination programs are enabling governments across North America and Europe to reduce coronavirus restrictions and resume more normal economic activity. That will help pare global oil stocks—which at one point last year threatened to overwhelm the world’s ability to store them—to below their five-year average by the end of July for the 2015-19 period, the OPEC committee projected. In the U.S., oil and oil-product inventories have fallen more than expected in recent weeks.
Investors and analysts also expect the group known as OPEC+, an alliance between members of OPEC and other top oil producers, to stick to plans to further relax production curbs that have been in place since prices collapsed last spring.
“The bull recipe for the oil market is still intact: reviving demand, muted U.S. shale oil response together with controlled and restrictive supply from OPEC+, resulting in further declines in inventories and yet higher oil prices,” said Bjarne Schieldrop, chief commodities analyst at Swedish bank SEB.
The OPEC cartel and its allies currently plan to boost production by 350,000 barrels a day in June and by 450,000 barrels a day in July, while Saudi Arabia will continue to unwind its unilateral cuts of one million barrels a day that it put in place earlier this year.
At the start of the year, OPEC wanted to bring back two million barrels to the market by the end of the year, according to Giovanni Staunovo, commodity analyst at UBS Wealth Management. If they proceed with current plans, they’ll have brought back 1.9 million barrels by the end of July, he said.
But ministers may stop short of spelling out production plans beyond the end of July, given uncertainties over both oil Iranian supply and Asian oil demand, Mr. Staunovo added.
The prospect of as much as 1.5 million barrels a day of sanctioned Iranian oil returning to the market also suffered a blow Monday. Amid talks between Iran and Western powers in Vienna to revive a nuclear deal and possibly lift economic sanctions on Tehran, the International Atomic Energy Agency criticized Iran’s lack of cooperation in explaining the agency’s discovery of undeclared nuclear material at several locations in Iran since the fall of 2019.
The dimming prospect of Iran resuming its supply of oil also boosted oil prices on Tuesday, Mr. Staunovo said. He added that OPEC may be reluctant to plan for future months without greater clarity on negotiations in Vienna.
Meanwhile, the outlook for global oil demand remains optimistic despite rising coronavirus cases figures in some parts of Asia, said ING analyst Warren Patterson.
“We believe that the market will be able to absorb…additional supply, and so would expect [OPEC] to confirm that they will increase output as planned over the next two months,” he said.
—Summer Said contributed to this article.
Write to David Hodari at David.Hodari@dowjones.com
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