West Texas Intermediate hit the highest since 2018 at the end of last week amid an increasingly favorable demand outlook.
The U.S. benchmark topped $70 a barrel on Friday before retreating slightly, and Brent crude spiked over $72 a barrel during the session.
Demand for oil is expected to rebound strongly this year, according to bank analysts and the head of the IEA, Fatih Birol. Meanwhile, the prospect of Iranian oil beginning to flow freely into markets has dimmed somewhat, according to a Mizuho executive.
“There’s plenty of room for upside here,” Bob Yawger, head of the futures division at Mizuho Securities, said as quoted by Bloomberg last week. “Summer and the reopening of the economy is bullish for demand” and “it looks much less likely we’ll have Iranian barrels any time soon than it did last week.”
The supply-side dynamics also offer reasons for bullishness. Excessive global oil stocks have been drained, and now there’s even talk of a shortage.
“The world risks a severe deficit of oil and gas,” the chief executive of Russia’s state-owned energy behemoth Rosneft said this weekend at the St. Petersburg International Economic Forum. “The world consumes oil but isn’t ready to invest in it.”
“Oil consumption will continue to grow despite a relative drop in its share in the global energy mix,” Sechin also said during a panel.
Judging by the latest price movements and the fact that the IEA revised its expectations for oil demand recovery radically, now expecting it to reach pre-pandemic levels within a year rather than in two years.
This is the same IEA that said investments in new oil and gas exploration need to end this year if the world is to reach its net-zero goals. In response, Russia’s Deputy Prime Minister Alexander Novak said this could bring oil prices to $200 per barrel.
Such price levels are hard to imagine right now. Still, an oil price of over $75 or even more per barrel for Brent has just become a lot more realistic than it was only a month ago.
By Irina Slav for Oilprice.com
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