Oil tops $70 as US summer driving season kicks off

Oil prices rose on Tuesday, with Brent topping $70, as optimism grew over the fuel demand outlook during the summer driving season of the United States, the world’s top oil consumer.

Prices were also boosted after data from China showed that factory activity expanded at its fastest this year in May.

Brent crude futures for August gained 83 cents, or 1.2 percent, to $70.15 a barrel by 02:23 GMT. US West Texas Intermediate crude for July was at $67.61 a barrel, up $1.29, or nearly 2 percent from Friday’s close, with no settlement price for Monday due to a US public holiday.

“While there are concerns over tighter COVID-19 related restrictions across parts of Asia, the market appears to be more focused on the positive demand story from the US and parts of Europe,” analysts from ING Economics said in a note on Tuesday. “In the US, the summer driving season officially got underway following the Memorial Day weekend, and we have entered this period with gasoline inventories already trending lower, and not too far from a 5-year low for this time of the year.”

Tracking firm GasBuddy said Sunday’s US gasoline demand jumped 9.6 percent above the average of the previous four Sundays, the highest Sunday demand since the summer of 2019.

The price gains were capped, though, as more output is expected to hit the market.

The Organization of the Petroleum Exporting Countries and its allies (OPEC+) are likely to agree to continue to slowly ease supply curbs at a meeting on Tuesday, OPEC sources said, as producers balance an expected recovery in demand against a possible increase in Iranian output.

OPEC+ decided in April to return 2.1 million barrels per day of supply to the market from May to July, as it anticipated global demand would rise despite surging coronavirus cases in India, the world’s third-largest oil consumer.

“We believe that the market will be able to absorb this additional supply, and so would expect the group to confirm that they will increase output as planned over the next 2 months,” ING Economics analysts added.

Market fundamentals are strong and oil prices could climb to $80 a barrel by the middle of the third quarter in the absence of Iranian supplies, Fereidun Fesharaki, the chairman of industry consultant FGE, told Bloomberg Television.

Iran’s comeback “will occur in an orderly and transparent fashion,” causing no upset to the stability that other OPEC+ nations have toiled to achieve, OPEC Secretary-General Mohammad Barkindo said at the Monday meeting. However, Iranian Oil Minister Bijan Namdar Zanganeh told reporters in Tehran that the nation could bring back crude output rapidly.