Oil Closes In On $75, Triggering Worry Of A Supercycle

With the long-feared prospect of a rise in Iran crude exports looking less likely and demand recovery continuing to exceed expectations, oil prices on Wednesday rose for a fifth consecutive session and closed in on the $75 mark. 

After the U.S. Energy Information Administration disclosed that crude inventories fell by 7.4 million barrels in the week to June 11 and refining utilization rose to 92.6 percent (the highest since January 2020), West Texas Intermediate rose 3 cents to $72.15 per barrel; earlier it reached $72.99, the highest since October 2018.

Brent gained 40 cents to hit $74.39 per barrel, reaching its highest since April 2019 and earning the distinction of having risen 44 percent this year as the world rapidly emerges from the pandemic.

Traders were also heartened by the indifference of traders to the announcement that indirect talks between Tehran and Washington would resume in Vienna on Saturday, noting that any new nuclear agreement could not logistically happen any time soon.

But some analysts are worried about the rapid pace of recovery: Castleton Commodities International on Wednesday said oil prices will be extremely volatile for the next few years because of supply constraints.

William Reed II, CEO of Castleton, told the FT Global Commodities Summit: "You could see spikes to even higher than $100 a barrel, even $130, and you could also see it go down to $35 a barrel for periods of time going forward; the question is what happens first, peak demand or peak investment?"

Reed outdid the prediction of even the most optimistic analysts by adding that he expects demand to be largely back to pre-Covid levels not next year, but by the end of this year.

Iindeed, aggressive vaccination campaigns over the past few weeks in India - whose calamitous Covid rates were seen as an impediment to over recovery - have quickly and significantly reduced infection numbers and triggered a rebound in gasoline and diesel sales.

So robust is the recovery that prince Abdulaziz bin Salman, energy minister for Saudi Arabia, on Wednesday speculated that a new supercycle in global oil prices could be triggered due to the lack of new investments in exploration (a problem that the pandemic exacerbated) - and he added that it is his job to prevent such a phenomenon from happening.