But the IEA warns that volatility will characterize crude trading in the months ahead: File Image/Pixabay
Having spent several weeks worrying about a global oil glut due to the collapse of the Organization of the Petroleum Exporting Countries (OPEC) talks and gutted demand due to Covid variants, crude traders on Tuesday made an about-face and caused prices to surge nearly 2 percent.
Shortly after the International Energy Agency reported that global storage drawdowns in the third quarter are on track to be the biggest in at least a decade, Brent rose $1.33, or 1.8 percent, to settle at $76.49 per barrel; West Texas Intermediate rose $1.15, or 1.6 percent, to settle at $75.25 per barrel.
The IEA added that prices will be volatile until OPEC resolves its internal differences; it also suggested that the possibility of the cartel scrapping its output deal altogether was remote.
Bob Yawger, director of energy futures, Mizuho
That was definitely a tailwind for the market
The talks fell apart last week when the United Arab Emirates rejected OPEC's plan to increase oil production by around 400,000 barrels per day (bpd) in monthly instalments from August until the remaining supply cuts were unwound.
Ed Morse, head of commodities research at Citigroup Inc., said, "Even if OPEC decides to raise output in August, that crude will not reach refineries until after the August peak-demand period will be over."
Bob Yawger, director of energy futures at Mizuho, agreed: "You're still not going to have enough crude oil on the market to avoid a supply deficit by the end of the year: that was definitely a tailwind for the market."
Supporting this tailwind was the contention from the IEA that it expects global oil demand to rise by 5.4 million bpd this year and by a further 3 million barrels in 2022.
Indeed, in the U.S., a rolling average of total oil products supplied – an indicator of consumption – reportedly jumped to the highest seasonal level in government data going back three decades in the week ending July 2.
Other gains in consumption aside from gasoline and diesel include more than a dozen products, including butane for gasoline blending and lubricants for heavy equipment.
As for traders' earlier fears that a nuclear deal between the U.S. and Iran was imminent, pundits on Tuesday said the talks aren't likely to resume until after the Islamic republic installs its new president next month.