The price forecasts of even more upside potential are materializing this week as oil prices rise further on a bullish cocktail of rising demand, summer maintenance and a vaccination breakthrough.
The freedom of movement of people is scaling up in the US and Europe in particular, where a softening of Covid-19 restrictions has boosted road and aviation traffic.
The easing of border restrictions, particularly in Europe, has helped boost international aviation, which is now at about 38% versus pre-Covid-19 levels, versus 35% last week.
Aviation is the hardest hit segment for oil use in transport and any indication that demand is starting to return is music to traders’ ears.
On the supply side, heavy maintenance seasons in Canada and the North Sea are helping prices stay lofty.
In June 2021, Rystad Energy estimates more than 330,000 bpd of oil and condensate supply is offline at Canada oil sands projects, and 370,000 bpd of supply offline in the North Sea, led by maintenance on major Forties blend fields such as Buzzard and partial maintenance at Johan Sverdrup in Norway.
Supply relief is also coming from Colombia, where civil unrest in the country has forced major operators to announce force majeure on their operations, with an estimated negative supply impact of up to 70,000 bpd in June 2021.
Meanwhile, OPEC+ is likely keeping a conservative supply approach until it gets more concrete signals on Iran’s production plans.
The Iranian presidential election this Friday will also give a clearer indication of the urgency the country will place on getting sanctions lifted, even if it means some tactical political concessions in the short term.
Immediate balances aside, policy also moves prices today. The G7 announcement to donate 1 billion Covid-19 doses over the next year is a bullish signal for oil demand recovery and oil prices.
If the inoculation of the global population accelerates further, that could mean an even faster return of the demand that is still missing to meet pre-Covid levels.
Despite the rising prices, the speeding up in demand recovery is so far receiving a limited upstream response, which could push the market into an overheated price environment in the summer months.
OPEC+ is only planning to pump 36.2 million bpd of crude in July but has more than 9 million bpd in spare capacity that it could bring online within months to help bridge any supply gap that emerges, so a supply gap shock may not materialize.
