Oil prices ease but remain at high levels on strong summer demand
Oil prices may be losing some ground today but they still remain at high levels as the high season for oil demand is approaching and as restrictions are lifted in much of Europe and the US.
The mild losses that the market is recording today are a result of pricing in the last bits of trader pessimism, coming from the prospect of a nuclear deal with Iran, that will allow the sanctions-hit country to export more oil, adding to the global supply.
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However, the bearish fumes of the prospect of a nuclear deal with Iran may have run their course, as the reality of an extra 1 million bpd or more has been gradually priced in since diplomatic representatives began meeting in Vienna this year.
The $70/barrel Brent oil price threshold is still well within reach as we approach the strong summer demand season.
The summer seasonal demand trends will be amplified as economies reopen and demand for refined products, particularly gasoline, improves.
This is why Brent, despite weakness in early trading, is still near $68/b, despite the bearish weight of an expedited Iran nuclear deal.
If demand evolves as the market expects and more oil is consumed during the summer season, prices can grow and remain high, offering producers a healthy environment to consider boosting their production.
As of now on a global scale, refineries are not yet churning as much as oil as they were before the pandemic, but some regions will get close to pre-pandemic levels this coming summer.
Oil demand growth will not “take off” until the third quarter of 2021, after which it will climb from the current 92.1mn b/d to reach 98.2mn b/d by December 2021.
As vaccination rates progress, our outlook for US gasoline demand remains positive and we expect US refinery runs to reach pre-pandemic levels during the fourth quarter.
The eventual upshot in demand will yield the way for more supply to return to the market.
The planned additional 2mn b/d of supply from OPEC+ by July 2021 will still not be enough to meet our forecasted demand uptick, therefore there could be a “call” on the group to produce more, especially in the peak demand month of August.
If OPEC+ doesn’t increase production further, the summer demand gap could be filled by Russia, or even by Iran, which is reportedly planning to start exports from its 1mn b/d Jask terminal starting in June 2021.
Although the US production will increase going forward it will not be able to meet the global supply gap.
We expect a gradual increase in US crude and condensate production in the coming months from the current 11.15mn b/d to 11.3mn b/d in June 2021, mainly driven by the Permian and Eagle Ford basins, but this will not be enough to balance the entire global market.
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