What’s happening: Crude oil traded higher on Tuesday, settling at its strongest level in more than two years.
What happened: Prospects for continuous improvements in America’s demand for energy drove oil prices higher. Traders await US crude inventory data from the EIA (Energy Information Administration), hoping for a third consecutive week of decline.
Meanwhile, comments from a top US diplomat around Iran’s nuclear deal also helped crude oil record gains on Tuesday.
Why it matters: Crude has recently been on a roll, with Brent prices surging around 40% year to date and WTI prices spiking almost 46%. Crude has climbed this year due to the improving forecast for energy demand as countries reopen gradually with a ramp up in covid-19 vaccinations.
In a monthly report, the EIA raised its 2021 projections for oil. The agency said it now expects WTI crude prices to average $61.85 per barrel, a 5% rise from its May estimate. Brent crude is now projected to average $65.19 this year, up 4.7% from the earlier estimate.
However, the EIA cut its 2022 oil projections by 0.4% to $56.74 per barrel for WTI and to $60.49 for the global oil benchmark. US oil production is likely to average 11.08 million bpd (barrels per day) this year, up 0.5% from May’s estimate.
The API (American Petroleum Institute) reported late Tuesday a decline in crude oil stockpiles of 2.108 million barrels for the week ending June 4, versus a 5.360 million decline in the prior week.
Crude oil also received some support from comments by a US official indicating that further oil supply from Iran is unlikely to be re-introduced into the global market any time soon. “I would anticipate that even in the event of a return to compliance with the JCPOA, hundreds of sanctions will remain in place, including sanctions imposed by the Trump administration," said US Secretary of State Antony Blinken.
Gains for oil were limited, however, by China reporting a 14.6% decline in crude imports into the country in May. Investors also remained concerned about Britain delaying the lifting of all covid-related restrictions from scheduled June 21 deadline. Although the UK is the country with one of the highest percentages of people vaccinated against covid-19, it has recently reported signs of a new variant.
WTI crude for July delivery gained 1.2% to settle at $70.03 per barrel on the NYMEX (New York Mercantile Exchange) on Tuesday, recording the highest settlement since October 2018. August Brent crude rose 73 cents to $72.22 per barrel on ICE Futures Europe.
In other energy commodities, July gasoline futures gained 3 cents to reach $2.22 a gallon, while July natural gas added 6 cents to settle at $3.13 per 1,000 cubic feet.
What to watch: Markets await weekly data on US petroleum supplies today. Analysts expect domestic crude supplies to decline by 4.1 million barrels for the week ending June 4. Gasoline supply is expected to rise 1 million barrels, with distillate supply projected to increase 400,000 barrels.
Traders will continue to keep an eye on the covid-19 vaccination drive around the world, as an increase in vaccinations will boost oil demand.