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OPEC and its allies expect oil inventories to fall further in the coming months, OPEC’s secretary general said on Monday, suggesting efforts by the producers to support the market are succeeding.
Oil stocks in developed world nations fell by 6.9 million barrels in April, Mohammad Barkindo said in a virtual appearance at the Nigeria International Petroleum Summit, 160 million barrels lower than the same time one year ago, making the figure public for the first time.
“We expect to see further drawdowns in the months ahead,” he said.
The Organization of the Petroleum Exporting Countries and allies – known as OPEC+ – decided in April to return 2.1 million barrels per day (bpd) to the market from May through July. The producers stuck to that decision at a meeting last week, sparking a rise in oil prices.
“The market has continued to react positively to the decisions we took, including the upward adjustments of production levels beginning in May this year,” he said.
While he noted that vaccine rollouts and the “massive fiscal stimulus” aided an upbeat outlook, he said uneven global vaccine availability, high inflation and continued COVID-19 outbreaks were continued risks to oil demand.
OPEC+ complied with 114% of agreed output curbs in April, Barkindo said.
The group cut output by a record 9.7 million bpd last year as demand collapsed when the COVID-19 pandemic first struck. As of July, the curbs still in place will stand at 5.8 million bpd.
During a later panel discussion at the conference, he added that while OPEC did not deny climate change, the global economy still needs oil.
“We encourage all our member countries to continue to invest in renewables but also to continue to meet the demand for hydrocarbons,” he said.
Oil jumped to a two-year high above $72 a barrel on Monday, extending this year’s rally supported by recovering demand and OPEC+ supply curbs, before giving up the gains as investors took profits.
Demand is rising in the United States and Europe as COVID-19 restrictions are loosened and, in another hopeful step for fuel use, India eases its lockdown.
OPEC and its allies are sticking to agreed supply restraints through July. Brent crude hit $72.27, the highest since May 2019, but by 1350 GMT was down by 6 cents, or 0.1%, to $71.83. U.S. West Texas Intermediate touched $70 for the first time since October 2018 and was last up 10 cents or 0.1% to $69.72.
“Oil demand has been rising this year and many traders have bet on the expected summer uptick, buying oil at cheaper prices before and now reaping the profits,” said analyst Louise Dickson of Rystad Energy.
“The strong levels are here to stay.”
Crude has risen for the past two weeks, and Brent is up by more than 37% this year, helped by supply curbs by the Organization of the Petroleum Exporting Countries and allies and demand recovering in part.
“With some improvement in the pandemic situation in India and the recovery in the U.S., China and Europe remaining on track, oil should remain a buy on dips,” said Jeffrey Halley, analyst at brokerage OANDA.
Investors may have sold off some contracts when WTI hit $70, said Avtar Sandu of Phillips Futures in Singapore. The chance of more Iranian supply and a drop in China’s crude imports also weighed, analysts said.
Nonetheless, there is still solid price support from both the demand and supply sides, Commerzbank said.
“The tailwind that oil prices are currently finding from virtually all sides remains strong,” said Commerzbank analyst Eugen Weinberg, calling Monday’s price correction “hardly surprising” after recent gains. World shares were range bound on Monday as markets digested Friday’s disappointing U.S. jobs report and a global tax deal between the G7 group of countries, while also looking ahead to inflation data due this week.
Investors were wary about how shares of major tech firms would react to the G7’s agreement on a minimum global corporate tax rate of at least 15%, although securing approval from the whole G20 could be a tall order.
So far, the reaction was muted with Nasdaq futures down 0.4% and S&P 500 futures down 0.2%.
“I would assume that it (the tax deal) is not helping the market in the sense that these Internet giants are going to be taxed more….it has an impact on sentiment in equity markets, but the reality is it has already been priced in,” said Sebastien Galy, senior macro strategist at Nordea Asset Management.
“So even though equity markets in the US are under pressure on the futures side, I’d expect it not to last till the end of the day.”
European shares opened lower, easing from all-time highs with commodity shares leading declines as sentiment soured after weaker-than-expected China trade data and worries about inflation.
MSCI’s All-Country World index, which tracks shares across 49 countries, traded just below record highs and was flat on the day after the start of European trading.
MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.05% and risked a fourth session of losses. Japan’s Nikkei edged up 0.3% and touched its highest in almost a month.
