More Modest Gains For Oil As Analysts Tentatively Embrace Demand Resurgence

Yet more evidence that demand is surging and the world is returning to normal caused crude traders on Wednesday to downplay their concerns over Iran and give oil prices another modest boost.

Their optimism was kindled when government data showed U.S. crude stocks falling last week to the lowest since March 2020; also, gasoline product rose to 9.5 million barrels per day (bpd), a proxy for demand, while distillate demand was also higher.

Another sign of demand recovery on Wednesday: the value of Saudi Arabia's oil exports in March rose by 75 percent year on year to 52.3 billion riyals ($13.95 billion), according to official data from the kingdom.

Brent on Wednesday settled up 16 cents to $68.87 per barrel, and West Texas Intermediate settled up 14 cents at $66.21 per barrel.

Jim Ritterbusch, president of Ritterbusch and Associates, said, "An urge to 'hit the roads' in heading out on vacations that were precluded by the pandemic last year will be supporting the gasoline market."

Andy Lipow, president of Lipow Oil Associates, added, "Prices should remain supported over the summer with the only thing keeping oil from price increases being the potential return of Iranian oil."

But while analysts have worried that the Islamic republic could flood the market with additional supply of about 1 million to 2 million bpd if a nuclear deal is struck with the U.S., others have pointed out that demand resurgence is so great the extra oil could easily be absorbed; also, despite rhetoric from Tehran, pundits think such a deal still faces many hurdles and is hardly assured.

In fact, the demand recovery made possible due to the global Covid vaccine rollout is so great that Alexander Novak, deputy prime minister of Russia, on Wednesday noted that global oil deficit is currently seen at around 1 million bpd.

Still, he went on to caution that the Organization of Petroleum Exporting Countries (OPEC), should take into account the possibility of more oil production by Iran when considering its further steps.

As for oil's staying power now that the pandemic is drawing to a close and despite political pressures for energy companies to confront climate change, Rafi Tahmazian, senior portfolio manager at Canoe Financial, called the oil and gas group a "hidden gem."

He said, "You have to reduce the demand and you will kill the oil supply; until that happens, we do not see any threat to the sector, [and] in fact attacking the oil production just extends the upside for the sector."