Brent Moves Higher, Meets Little Resistance

Another week of rising oil prices is raising more questions on how far the rally can go before either oil demand feels the pain of Brent pushing past $76 per barrel or oil supply rises as producers open the taps. The consensus seems for now that neither demand nor supply will blink as consumers enjoy the freedom from easing Covid-19 restrictions and producers see room to add more oil under the Opec-plus umbrella while keeping the market undersupplied. Energy Intelligence balances show that oil demand is booming, with June consumption of refined products rising 3.9 million barrels per day from May, and another 1.9 million b/d coming in July and August combined. At the same time, the data show remarkable discipline from both Opec-plus and US shale producers that see income and free cash flow rising but seemingly have no intention of smothering the rally by pumping more oil. Conventional thinking is that a rising oil price might trigger monetary reactions from central banks, one analyst said, as it could hurt economic growth. “But the thinking is also that no policy action is taken as a higher oil price destroys demand and speeds up the desired energy transition,” the analyst noted, adding that his pre-pandemic research shows that oil prices at $80/bbl have no demand impact. “For that you need $100/bbl.” Speculation in the options market on futures contracts is rising that Brent might get there later this year. This week, the Brent price added another 3%, with the Brent August contract closing Friday at $76.18/bbl, a gain of 62¢ on the day and $2.67 on the week. In New York, the Nymex West Texas Intermediate (WTI) contract closed at $74.05/bbl, for a gain of 75¢ on the day and $2.76 on the week. Market sentiment remains overwhelmingly bullish on the expectation that rising consumer demand will drain surplus product inventories so quickly that product prices will spike and support rising oil prices. Globally, the gasoline market is mostly back to pre-pandemic levels, with naphtha and fuel oil close as well. Diesel and jet fuel are still lagging, but now the crucial Asian market sees the middle distillate market tightening as well. Tanker data shows the region no longer ships surplus inventories on newbuild vessels to the Atlantic Basin, which in turn is lowering tank levels. But refiners in Asia and Europe are still struggling to make money (OD Jun.24'21). Only then will they buy more crude oil to meet rising oil demand. “But it seems a matter of time,” the market analyst said. John van Schaik, New York