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Futures Movers: Oil prices inch higher on bets for stronger U.S. demand

Oil futures head higher on Tuesday, buoyed by expectations for further improvement in U.S. energy demand, as a recent survey showed major oil producers followed through with their plan to gradually increase output.

Traders also weighed forecasts calling for a third-straight weekly decline in Wednesday’s data from the Energy Information Administration on domestic crude inventories.

Trading on Tuesday was “a bit of a choppy and moderately volatile,” but there have “not been any material catalysts or headlines to really speak of,” said Tyler Richey, co-editor at Sevens Report Research.

U.S. benchmark crude prices touched $70 a barrel on Monday, and that “seemed to prompt some profit taking, but the medium term technical trend remains bullish, underscored by the latest run to multi-year highs,” he told MarketWatch.

Fundamentally, the market appears to be “confident” in the ability for the Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+ to “manage the gradual increase in collective production” they’ve agreed to, through the end of July, said Richey.

Demand expectations, meanwhile, “remain optimistic given global reopening efforts and view that there will be some degree of a return to economic normal in the months ahead,” he said.

West Texas Intermediate crude for July delivery
CL00,
+0.74%

CLN21,
+0.74%

rose 37 cents, or 0.5%, to $69.60 a barrel on the New York Mercantile Exchange. Prices based on the front-month contracts, had settled at $69.62 on Friday, the highest finish since October 2018.

August Brent crude
BRN00,
+0.59%

BRNQ21,
+0.59%
,
the global benchmark, added 22 cents, or 0.3%, to $71.71 a barrel on ICE Futures Europe.

Crude-oil production from OPEC+ climbed by 430,000 barrels per day in May, according to an S&P Global Platts survey released Tuesday, The increase was led by Saudi Arabia, which accounted for about 84% of the monthly rise, the survey showed.

The survey data showed that OPEC+ compliance with its current production agreement has been “mostly steady,” at 111.45% in May, compared with 111.16% in April.

The S&P Global Platts report on OPEC+ output seemed to confirm that compliance with its agreement is “historically high and that continues to help trader confidence in OPEC+ right now,” said Richey.

Meanwhile, “observers are beginning to accept that it will take some time yet before Iranian oil exports return to the market,” said Eugen Weinberg, commodity analyst at Commerzbank, noting remarks by U.S. Secretary of State Antony Blinken, who said it was unclear if Iran was willing to comply with the conditions of the 2015 nuclear agreement.

Weekly data on U.S. petroleum supplies will be released by the EIA on Wednesday. On average, analysts forecast a decline of 4.1 million barrels in domestic crude supplies for the week ended June 4, according to a poll conducted by S&P Global Platts. The survey also showed expectations for supply increases of 1 million barrels for gasoline and 400,000 barrels for distillates.

In a monthly report released Tuesday, the EIA lifted its oil-price forecasts for this year.

The EIA forecast this year’s West Texas Intermediate crude prices at an average $61.85 a barrel, up 5% from the May forecast. Brent crude is expected to average $65.19 this year, up 4.7% from the previous forecasts.

The EIA, however, lowered its oil forecasts for 2022 by 0.4% to $56.74 for WTI and to $60.49 for Brent. U.S. oil production is expected to average 11.08 million barrels per day this year, up 0.5% from May’s forecast.

Domestic gasoline consumption is likely to average 9.1 million barrels a day this summer, which runs from April to September — 1.3 million barrels per day more than last summer, but down 400,000 barrels per day from the summer of 2019, the EIA report showed. The EIA also expects U.S. regular gasoline retail prices to average $2.92 a gallon this summer, up from $2.07 last summer.

On Nymex Tuesday, July gasoline futures
RBN21,
+0.75%

tacked on 0.4% to $2.20 a gallon and July heating oil
HON21,
+0.56%

rose 0.3% to $2.12 a gallon.

July natural gas
NGN21,
+2.48%

traded at $3.18 per million British thermal units, up 3.7%.

“The combination of global COVID recovery, anti-coal sentiment, and dollar weakness has been a powerful force” in natural gas, said Arnim Holzer, macro and correlation defense strategist with EAB Investment Group, in a note Tuesday. This is “quite a different environment” from the days of natural gas “being a flare off asset,” he said, referring to the burn off of associated gas from oil and gas wells.

However, there are “multiple” short-term bearish fundamental factors for natural gas at the moment, with U.S. government weather forecasts calling for below-normal temperatures for the eastern U.S. from June 13 to June 21, said Christin Redmond, commodity analyst at Schneider Electric. Milder temperatures would lead to less demand for natural gas from generators during the summer cooling season.

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