Crude oil futures rise as JCPOA talks drag, concerns about overheated markets

0250 GMT: Crude oil futures were higher during midmorning trade in Asia June 2 as negotiations over the Joint Comprehensive Plan of Action continued to dawdle, and as a rebound in oil demand in China, the US and Europe threatened to outpace impending increases in supply.

At 10:50 am Singapore time (0250 GMT), the ICE August Brent contract was up 38 cents/b (0.54%) from the previous settle at $70.63/b, while the NYMEX July light sweet crude contract was up 35 cents/b (0.52%) at $68.07/b.

Any resolution on the JCPOA remained far from certain as the fifth and final round of negotiations proceeded in Vienna, putting into question the prospect of increased Iranian oil hitting the market.

"I am not personally confident that we reach a conclusion in this round of talks ... The delegations may possibly need to return to their countries for more consultations," Iran's head negotiator Abbas Araghchi had said earlier May 31, as quoted by state news agency IRNA.

In a June 1 tweet, Mikhail Ulyanov, Russian envoy to the UN, agreed with Araghchi, and added that "the remaining outstanding issues are rather complicated [and] a very creative and responsible approach is needed to find solutions."

Edward Moya, OANDA's senior market analyst, said in a June 2 note that slow progress on the JCPOA talks boosted oil prices. "It looks like Tehran and the US are not as close to finalizing a deal as many have thought, possibly delaying everyone's forecast for the return of additional Iranian crude."

Crude oil prices were also supported by a strong demand outlook for regions undergoing economic rebounds, including China, the US and Europe.

The market was particularly exuberant about the demand outlook in the US, where the Memorial Day weekend kick-started the country's summer driving season. Gasoline demand in the US was already on an uptrend even prior to the Memorial Day holiday, with Apple mobility data showing US driving activity averaging 152% of the baseline in the week ended May 28 -- marking a second straight week the index has hit a fresh all-time high in records dating back to January 2020.

With rising oil demand in China and the West expected to compensate for curtailed demand in parts of Asia still grappling with elevated COVID-19 infection numbers, and with the prospect of additional Iranian crude still in flux, the OPEC+ coalition decided during its June 1 meeting to proceed with initial plans to relax its output quota by 840,000 b/d in July.

OPEC will convene June 24 and then hold an expanded meeting July 1, with Russia and nine other partners in the OPEC+ supply accord to decide on production quotas for August and beyond.

Despite more OPEC+ crude coming into the market, concerns have emerged that the market is on the cusp of overheating.

"Over the next six months, I see very clearly that there is a strong recovery of oil demand in the US, China, Europe and elsewhere and if OPEC+ sticks to its current policies, we may see a wider gap between supply and demand," International Energy Agency's director Faith Birol told Bloomberg Television in an interview June 1.

In its latest oil market report released in May, the IEA had cautioned that current production plans by OPEC+ meant supply "won't rise fast enough to keep pace with the expected demand recovery, even if a nuclear deal with Iran sees more volumes coming from the OPEC member later this year."