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Oil Hits $70 as Saudis Say ‘Slowly-Slowly’ on Output Hikes

(C) Reuters.

By Barani Krishnan

Investing.com – “I will believe it when I see it,” Saudi Energy Minister Abdulaziz bin Salman said skeptically to forecasts for explosive oil demand in the coming months.

With that the de facto chief of OPEC+, who went along with the cartel’s wishes to add to immediate production, solidified a $70 per barrel base for crude as trading began for June.

The 13-member Organization of the Petroleum Exporting Countries and their 10 non-member allies, who together form the OPEC+ alliance, held their monthly talk on supply-demand calibration on Tuesday.

The oil producing alliance stuck to its plan to hike oil output in July. But the Saudi energy minister kept the market guessing as to whether the group will add more supply later this year to keep pace with the accelerating global recovery.

“The demand picture has shown clear signs of improvement,” Abdulaziz said in some of his most upbeat comments since the crash last year, Bloomberg reported. But pressed on whether more supply increases will be needed, he reiterated his stance from early March — that he wished to see more uptake from customers, instead of just forecasts.

West Texas Intermediate crude, the benchmark for U.S. oil, was up $1.36, or 2.1%, to $67.68 by 12:45 PM ET (16:45 GMT), after hitting a 12-week high of $68.87.

Brent crude, which acts as the global benchmark for oil, rose 81 cents, or 1.2%, to $70.13, after a 12-week peak at $71.32.

OPEC+ decided in April to return 2.1 million barrels per day of supply to the market from May to July, and the group’s Joint Technical Committee has forecast that stockpiles will fall by at least 2 million barrels a day from September through December.

But Abdulaziz has reason for caution.

The one fly in the OPEC+ ointment is the possible increase in Iranian output in coming months as global powers renegotiate a nuclear pact for Tehran that could remove U.S. sanctions on the Islamic Republic’s oil exports.

Iran’s daily production of around 2.5 million barrels could reach 6.5 million barrels a day within a few months, its oil minister Bijan Namdar Zanganeh said Monday. Since the 1970s, Iran has not produced so much oil in a year, with the recent peak of the past decade not crossing 4.0 million barrels daily.

While the Persian Gulf state is known for its political bravado — openly flouting Trump-era sanctions on its oil exports since President Joe Biden came to office in January — no one wants to completely disagree with Iran’s supply projections.

For one thing, Tehran has strong support from China to rework its economy, and some of that Sino help could be directed at rebuilding the Iranian oil industry fairly quickly. If this happens, it will be a win-win for both as China, the second largest oil consumer, is always on the lookout for more and cheaper crude.

The additional crude flows from Iran, whenever they come, could force a reconfiguration of global supply that could ultimately be more bearish than bullish — especially with questions about demand resurfacing after new coronavirus flare-ups in No. 3 oil consumer India.

“Covid-19 is a persistent and unpredictable foe, and vicious mutations remain a threat,” OPEC Secretary-General Mohammad Barkindo said, concurring with Abdulaziz.

OPEC+ has spent more than a year rescuing prices from historic lows — WTI reached pandemic lows of minus $40 per barrel — and is only cautiously adding to supply now. But the equation is already shifting: the market is heading into a supply deficit and surging crude prices are fueling inflation concerns.

Despite Abdulaziz’s tendency to err on the side of caution, OPEC+ could start to feel external pressure to ease prices as the supply deficit becomes clear from next month.

Fatih Birol, executive director of the International Energy Agency, told Bloomberg Television earlier on Tuesday that without more supply, prices will face further upward pressure.

“One thing is clear,” Birol said. “In the absence of changing the policies, with the strong growth coming from the U.S., China, Europe, we will see a widening gap” between demand and supply.

Oil Hits $70 as Saudis Say ‘Slowly-Slowly’ on Output Hikes