Brent approaches $71 ahead of OPEC meeting

© Reuters.

By Samuel Indyk – Brent crude futures were trading higher ahead of the meeting of the Organization of the Petroleum Exporting Countries and its allies (OPEC+) on Tuesday.

Sources have suggested that the countries will likely conclude that supply curbs can continue to be slowly eased, allowing production to increase slightly again in July.

This comes amid the backdrop of a potential increase in Iranian crude as Iran and world powers discuss reinstating the previous nuclear deal. Under the Trump administration, the Iranian deal broke down and sanctions were initiated on Iranian crude, however, if the deal is reinstated, Iran should be able to resume crude exports. How long it will take for production and exports to return to previous levels is unclear.

“There are many moving parts when it comes to factors affecting the global oil market, such as the pace of change during the pandemic,” OPEC Secretary-General Barkindo said on Monday.

The committee assessing the oil market prior to the meeting said the increased stockpiles built up during the pandemic are likely to start to fall during the second half of the year as demand picks up.

The recovery in the US and Europe is going full steam ahead and as the US enters “driving season” traders will be keeping an eye on gasoline inventories for signs of increasing demand.

“In the US, the summer driving season officially got underway following the Memorial Day weekend, and we have entered this period with gasoline inventories already trending lower, and not too far from a 5-year low for this time of the year,” said ING analysts in an emailed research note.

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“Given that demand is expected to continue edging higher, this suggests that we will only see a further tightening in the US gasoline market, which should be supportive for gasoline cracks over the coming months.”

GasBuddy, which tracks gasoline demand in the US, said that Sunday’s gasoline demand was 9.6% higher than the average of the past four Sundays, and the highest Sunday demand since summer 2019.

At 11:27BST, August were trading higher by 2% at $70.74, after hitting $70.99 earlier in the day, the highest since March. July were higher by 2.7% at $68.11.

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