Oil prices rose for a third day; Why?

Oil prices increased for a third day on June 3 on expectations of a rise in fuel demand later this year, particularly in the United States and Europe, and China. Meanwhile, major producers are maintaining supply discipline.

Brent crude futures boosted 40 cents, which equals 0.6%, and settled at $71.75 a barrel, after earlier hitting the highest since September 2019. Moreover, the international benchmark increased by 1.6% on Wednesday.

U.S. West Texas Intermediate (WTI) crude futures surged 34 cents, or 0.5%, to $69.17 a barrel. Prices earlier climbed to $69.40, the most since October 2018, after boosting 1.5% in the previous session.

The consensus among market forecasters, including the Organization of the Petroleum Exporting Countries and its allies, called OPEC+, is that oil demand will surpass supply in the second half of 2021, driving the recent run in rates.

OPEC+ data reveals that by the end of the year, oil demand will be 99.8 million barrels per day versus supply of 97.5 million BPD.

We are likely to see the oil demand recovery led by the US, Europe, and China

Meanwhile, this rebalancing will be led by resurgent demand in the United States, the world’s largest oil user, from vehicle consumption this summer. It will also be led by rising fuel needs in China, the world’s second-biggest oil consumer, and in the U.K. as it exits its coronavirus lockdowns.

According to BA commodities analyst Vivek Dhar, the U.S. driving season sees higher‑than‑normal fuel consumption. Meanwhile, U.K. traffic is now standing above pre‑pandemic levels. He added that we are likely to see the oil demand recovery led by the U.S., Europe, and China.

Based on two market sources, U.S. crude oil inventories declined by more than 5 million barrels last week. This is according to American Petroleum Institute figures on Wednesday.

OPEC+ agreed on June 2 to continue with plans to ease supply curbs through July.

The OPEC+ meeting lasted 20 minutes, suggesting strong compliance among members. This also speaks to the conviction that demand will rebound once the coronavirus pandemic shows sign of abating.