Oil hit a 32-month high in early morning trading on Monday as countries across the globe speed up vaccination programmes to control the spread of the coronavirus pandemic and reopen economies.
Brent, the international benchmark for more than half of the world’s crude, rose 0.48 per cent to $73.04 per barrel at 10:30am UAE time. West Texas Intermediate, the key gauge for US oil, was up 0.42 per cent at $71.21 per barrel.
“Benchmark crude oil futures opened buoyant in Asia [on] Monday with carryover strength from the previous week,” Avtar Sandu, senior manager of commodities at Singapore-based Phillip Futures, said in a note.
Oil prices are finding support “after the International Energy Agency (IEA) on Friday predicted that global oil demand will recover to pre-pandemic levels by late 2022,” he said.
Demand for crude is expected to grow this year by 5.4 million barrels per day and a further 3.1 million bpd next year, the IEA said.
Opec also left its outlook for global demand growth unchanged for the second consecutive month amid easing mobility restrictions.
Oil demand is expected to grow at 6 million bpd with total consumption expected to hit 96.6 million bpd this year, Opec said in its monthly oil markets report on Thursday.
Oil demand in the Organisation for Economic Co-operation and Development (OECD) group of countries is expected to increase by 2.7 million bpd in 2021 led by the US, as the world’s largest economy continues to recover from the pandemic, according to Opec report. Non-OECD oil demand is estimated to rise by 3.3 million bpd with China taking the lead.
“GDP growth rates in the second half of 2021 are forecast to significantly exceed that of the first half of 2021,” Mr Sandu added. “The ongoing fiscal stimulus in the US, amounting to almost $3 trillion, or more than 3 per cent of global GDP, is one very important supporting factor, as well as China’s effort to push its economy forward.”
Earlier this month, the OECD revised its global economic growth forecast to 5.75 per cent this year and 4.5 per cent in 2022 after output shrank 3.5 per cent in 2020. In April, the International Monetary Fund also raised its 2021 global outlook to 6 per cent.
Countries across the globe are ramping up vaccination programmes and more than 2.35 billion doses have been administered across 178 countries as of Monday, according to data collected by Bloomberg.
Iraq’s oil minister Ihsan Abdul Jabbar expects oil to trade in the range of $68 to $75 per barrel in the second half of this year.
Crude prices will remain in this range if Opec and its allies continue to cut production to support markets, Mr Jabbar told reporters in Baghdad on Saturday.
The G7 announcement to donate 1 billion Covid-19 doses over the next year is also a bullish signal for oil demand recovery, according to Louise Dickson, oil markets analyst from Norway’s Rystad Energy.
“If the inoculation of the global population accelerates further, that could mean an even faster return of the demand that is still missing to meet pre-Covid levels,” she said.
Heavy maintenance seasons at different oil fields in Canada and the North Sea are also helping prices to stay higher.
Rystad Energy estimates more than 330,000 bpd of oil and condensate supply is expected to be offline at Canada oil sands projects this month due to maintenance.
Demand for jet fuel is also expected to rise as countries reopen borders, according to a report from Kuwait’s Kamco Invest.
Earlier this month, Opec and its allies voted to stick with the current plan of bringing 2 million bpd of output to the market, despite the prospect of a return of Iranian barrels if sanctions lift.
“As the economy continues to recover from coronavirus, Opec and its allies will need to increase supply to meet the surge in consumer demand,” Naeem Aslam, chief market analyst at Avatrade, said.
“Having said that, traders should keep in mind that the ongoing nuclear deal negotiations between the US and Iran are likely to take effect soon. Iran is in a strong position to increase its oil supply in a relatively short period of time, which could result in a significant retracement of global oil prices.”