Brent Prices Resume Charge Toward $75

Oil bullishness was on full display on Monday as Brent staging a fresh assault on $75, which traders think can soon be topped as evidence grows of rapidly rising demand. In London, the August Brent contract was up $1.39 and settled at $74.90 per barrel, only 4¢ short of its intraday high of $74.94/bbl. Pushing positive sentiment is a raft of price forecasts that now see Brent rising fast later this year and next, with Bank of America posting a particularly bullish outlook of $100/bbl in 2022, while others see oil prices reaching the low $80s as more realistic. The crude rally remains fueled by tight supply and expectations that refineries will ramp up runs to meet rising consumer demand, which is jolting prompt crude prices. But some fear the rally might implode, as higher prices could trigger more investment in new supply and at the same time erode demand growth -- or even lower consumption altogether. “Oil prices have disconnected from the marginal cost of supply. Instead, they are traveling to the level where demand destruction kicks in, which we estimate at (around) $80/bbl,” Morgan Stanley wrote in a note. Those worries were ignored on Monday. In New York, the July West Texas Intermediate (WTI) contract gained $2.02 and closed at $73.66/bbl. The contract ceased trading at market close and the WTI front-month rolled to August, which rose $1.83 to finish at $73.12/bbl. Technical trading analysts note that if Brent scales $75.60/bbl, the way is open to the low $80s. Only if Brent drops well below $70.95/bbl could it face further downward pressure, their charts show. Pandemic Control For now, positive sentiment is fed by assumptions that the pandemic can be held in check, enabling consumers to travel more, and that oil inventories continue to decline while Opec-plus producers hold back crude output. This has attracted more risk capital, which has boosted prompt prices and widened the spot premium over later supplies (related). In Brent, the front premium over the second month is now 85¢/bbl, more than double the 40¢ from Jun. 1. The Brent forward curve signals that the market is still convinced that supply tightness is looming this summer, regardless of Opec-plus supply additions or the size of the surplus in oil and product inventories. Adding to the bullish trend, the inflation narrative has continued to channel capital inflows into oil paper markets. Historically, commodities have performed best when inflation boosts prices, which explains why oil is acting as a magnet for investors' portfolios. Some think that the market sees a shift away from too little demand -- which was the major thought during the pandemic and kept a lid on rising prices – to too little supply, which would allow prices to grow and trigger new investments. Julien Mathonniere, London