WTI jumps 3% on bullish demand outlooks, falling US inventories

Crude prices moved sharply higher June 21, underpinned by global demand recovery hopes and a pause in talks to revive the Joint Comprehensive Plan of Action that could see US sanctions lifted on Iranian oil.

NYMEX July WTI settled $2.02 higher at $73.66/b, and ICE August Brent climbed $1.39 to $74.90/b.

"The rebound in demand in the northern hemisphere summer is so strong that the market is becoming increasingly concerned about further sharp drawdowns on inventories," ANZ Research analysts said in a June 21 note.

Analysts surveyed by S&P Global Platts on June 21 said US crude oil inventories are expected to have declined around 6.3 million barrels in the week ended June 18, a draw that would put stocks 5.5% behind the five-year average of US Energy Information Administration data at 460.4 million barrels.

The draw comes as refinery utilization is expected by analysts to average 93.1% of total capacity, up 0.5 percentage point from the week prior and the strongest since late December 2019.

NYMEX July RBOB settled up 2.86 cents, at $2.1969/gal and July ULSD climbed 3.36 cents to $2.1268/gal.

More mobility

US refinery demand has been underpinned by surging summer product demand. Apple Mobility data shows US driving activity pushed to around 164% of the index's January 2020 baseline in the week ended June 18, up six percentage points from the week prior and a fresh record high for the dataset.

In an encouraging sign for distillate demand, Apple data shows US transit ridership averaged 95% of baseline last week, the highest since the first week of March 2020.

Brent prices should average $68/b in 2021, and tightened supply and demand balances could briefly push oil to the $100/b level in 2022, analysts at Bank of America said June 21. The analysts cited pent-up post-lockdown mobility demand, a slow return of public transport ridership, and an uptick in miles driven from an increasingly work-from-home labor force.

"Energy prices are overwhelmingly being driven by supply risk," TD Securities analysts said. "The global macro context is less relevant in the context of a massive increase in demand for energy products expected in coming months, particularly at a time when OPEC is keeping with their cautious plan to raise output, which should see markets tighten up at fast clip in coming months."

Iran sanctions

The election of Ebrahim Raisi, a staunchly conservative politician currently sanctioned by the US government, as Iran's president presents headwinds to continued negotiations on reviving the Joint Comprehensive Plan of Action. The sixth round of indirect talks between Washington and Tehran ended in Vienna on June 20.

While Raisi is not particularly friendly toward the West, the hardliner has said he is committed to the nuclear deal, Platts reported earlier.

Following the June 20 negotiations, Mikhal Ulyanov, Russia's envoy in Vienna said on Twitter: "Now it is clear what is possible and what is not. Apparently neither side will achieve fully what it wants at the Vienna talks on JCPOA. But there are good reasons to believe that all sides will be satisfied."

S&P Global Platts Analytics expects a JCPOA agreement could lead to sanctions relief by September, which would boost crude and condensate exports to 1.5 million b/d by December, from 600,000 b/d in May.

While the JCPOA negotiations have raised concerns the removal of US sanctions would result in a flood of oil hitting the market, analysts observed that current bullish demand fundamentals signal the need for an urgent increase in oil production as global demand recovers more rapidly than expected from the pandemic