Growing oil demand, shrinking stockpiles push Brent crude past $70

(Bloomberg) --Brent oil topped $70 a barrel with optimism building about the demand outlook in key regions such as the U.S., and on signs that a glut built up last year has been whittled away.

The global benchmark added as much as 1.1% reaching its highest since March 8, while U.S. crude futures briefly topped $67 a barrel. The global benchmark hasn’t had a sustained period above $70 since 2019.

Oil has joined other commodities in a blistering rally this year, emerging as a hedge for growing rates of inflation, and with demand rebounding from the depths of the pandemic. Most recently that has been led by the U.S., where even the lagging aviation industry is showing signs of picking up, and Europe. That’s despite the ongoing spread of the virus in parts of Asia, most notably India.

Crude’s gains this year are already having an impact on pump prices. Aided by the stoppage on the Colonial Pipeline system, U.S. gasoline topped $3 a gallon last week for the first time since 2014.

Traders are optimistic about the prospects for a bullish summer as consumption snaps back with travel re-opening. As a result, much of Wall Street is calling for higher prices in the coming months, with Goldman Sachs Group Inc. talking up the prospects of $80 a barrel. On Tuesday, a weaker dollar was also aiding crude’s rally.

“Hopes of a rise in demand and a weaker dollar is pushing oil prices higher,” said Hans van Cleef senior energy economist at ABN Amro. “If we break above the $70-$72 range, technically the way is open for $78-$80.”

Prices:

•          Brent for July settlement gained 0.9% to $70.11 at 8:40 a.m. London time
•          West Texas Intermediate for June added 0.9% to $66.87
•          Last week, the International Energy Agency marked a major moment in the market’s recovery, saying that the surplus stockpiles that have built up since the pandemic began have cleared.

That’s reflected in the oil market’s structure which is now largely trading in a bullish backwardation -- where nearby prices are more expensive than ones further out. That pattern generally indicates tight supply.

Other oil-market news:

•          The world has a choice -- stop developing new oil, gas and coal fields today or face a dangerous rise in global temperatures, according to the International Energy Agency.
•          Iran’s veteran oil minister, Bijan Namdar Zanganeh, will retire when President Hassan Rouhani’s term ends this year, closing a career that started with the birth of the Islamic Republic in 1979.
•          China’s gasoline exports in April fell about 23% from a year earlier to 1.47 million tons, according to government data.