The storm had already claimed the lives of at least two people in China's Hainan and 16 people in the Philippines
Oil prices would likely further pick up ahead of an Opec+ meeting this week despite a delayed resumption in passenger aviation and worsening coronavirus infections in India, experts say.
Analysts and market observers said the Organisation of the Petroleum Exporting Countries and its allies are likely to continue the existing pace of gradually easing oil curbs when they meet tomorrow to discuss the latest market trends and a possible increase in Iranian supply. They said oil market can easily absorb Iranian supply shock and will sustain an upward trend in coming weeks.
In the previous meeting in April, Opec+ decided to return 2.1 million bpd of supply to the market from May to July as it expected global demand would increase despite surging coronavirus cases in India.
Ehsan Khoman, director and head of emerging markets research for Europe, Middle East and Africa at MUFG Bank, said oil prices are expected to “overshoot” in the remaining part of the second quarter and likely to remain in the $70s over the summer.
“We expect a significant ramp-up in global oil demand in the next six months, owing to both vaccines and mobility trends increasingly becoming more resilient to virus waves. This is central to our thesis as to why we expect oil prices to ‘overshoot’ in Q2 [Brent at $77] and remaining in the $70s over the summer,” Khoman said in a latest research note.
Oil prices inched higher on Friday, with Brent holding near $70 a barrel as strong US economic data and expectations of a rebound in global demand outweighed concerns about more supply from Iran once sanctions are lifted.
Brent rose 0.27 per cent to settle at $69.65 a barrel while US West Texas Intermediate crude dropped 0.36 per cent to settle $66.61 a barrel. Brent and US crude are up 3.57 per cent and 4.31 per cent, respectively, in May. Oil prices surged more than 30 per cent this year so far.
“Boosted by good economic data and risk appetite among investors on the financial markets, Brent is making a renewed bid for the psychologically important $70 per barrel mark. Concerns about demand because of the pandemic are giving way to optimism in view of the rapid return of consumers,” said Eugen Weinberg, an analyst at Commerzbank.
Oil prices have been trading range-bound — Brent at $66-$68; WTI at $63-$66 — in recent weeks as investors are weighing signs of an improving demand outlook predominantly in developed markets stemming from accelerated vaccine rollouts and reopenings, against the prospect of more crude supply flowing from Iran.
“We continue to remain bullish and for the week ahead look for further evidence of demand strength, falling inventories, rising premiums and the forward curve in steeper backwardation oil price forecast. We expect a significant ramp-up in global oil demand over the summer, owing to both vaccines and mobility trends increasingly becoming more resilient to virus waves,” Khoman said.
Oil demand to surge
Analysts expect global oil demand to rebound closer to 100 million bpd in the third quarter on summer travel in Europe and the United States following widespread Covid-19 vaccination programmes.
“Gasoline demand has now exceeded 2019 levels in many areas,” ANZ analysts said in a note.
“Given our expectations of a current global deficit of 1.7 million bpd in second quarter of 2021, the upcoming demand ramp-up will not only absorb remaining excess inventories and the likelihood of the July ramp-up in Iranian crude exports, but still require a cumulative additional 2.6 million bpd increase in Opec+ production by year-end,” according to MUFG Bank estimates.
“This will require an early exit from the three-stage agreement crafted in April 2020. The robust growth momentum into 2022 and vaccine inoculation of major emerging markets will require an additional 800,000 bpd increase in Opec+ production in 2022, as well as a 1.1 million bpd increase in US shale output, once excess spare capacity has ebbed and the broad strategy pivots to raising production while returning case to shareholders,” Khoman said.
On the demand side, he said crude demand will sustain an upward trend in coming weeks.
“Our forecasts point to global oil demand rising from 95.8 million bpd in the second quarter to 98.4 million bpd by the third quarter and returning back to the pre-virus run rate of above 100 million bpd by the first quarter of 2022,” he added.
“Vaccine inoculations accelerating in North America and Europe, and the expected easing of international travel restrictions in the coming weeks will be unleashing pent-up transportation demand in coming weeks,” MUFG Bank added.
— muzaffarrizvi@khaleejtimes.com
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