Oil is trading higher Monday touching its highest price point since 2018 ahead of an OPEC+ meeting at which the alliance is forecast to announce supply increases that won’t be enough to keep pace with the global demand recovery.
Futures in New York traded near $74 a barrel after rising 1% on Friday. The alliance, which gathers Thursday, will boost output by 550,000 barrels a day in August, according to a Bloomberg survey. However, that’s barely a quarter of the global deficit that OPEC+ itself anticipates during that month.
U.S. forces conducted air strikes on Sunday against Iranian-backed militia groups blamed for drone attacks on American facilities in Iraq, the Defense Department said. The attacks may make it more difficult to revive a nuclear deal that would pave the way for a resumption of Iranian crude exports.
While it’s possible OPEC+ might decide to boost output by slightly more than 550,000 barrels a day, it’s unlikely to exceed this significantly, said Vandana Hari, founder of energy consultancy Vanda Insights. “OPEC+ wouldn’t want to jeopardize the rally and Saudi Arabia still appears to be sticking to the theme of caution over demand recovery.”
Oil is up more than 50% this year as a rapid rebound from Covid-19 in major energy markets such as the U.S., Europe and China has led to increased mobility and greater consumption of transport fuels. The recovery has also drained bloated stockpiles, and the International Energy Agency has urged OPEC+ to return more supply to keep markets balanced
The nuclear talks were dragging on even before the U.S. strikes. The election of conservative cleric Ebrahim Raisi as Iranian president is viewed by some analysts as likely to delay a rejuvenated pact. The air strikes aren’t likely to add a significant premium to crude, with the market having already written off the prospect of an Iran deal happening soon, Hari said.
The prompt timespread for Brent was 82 cents a barrel in backwardation — a bullish structure where near-dated contracts are more expensive than later-dated ones. That compares with 85 cents a week earlier.