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Crude climbs on strong demand outlooks, shrugging off US product builds

Highlights

OPEC bullish on H2 2021 demand growth

Holds 2021 forecast unchanged

US lifts some sanctions on Iran oil sector

Oil futures pushed to fresh multiyear highs June 10 as the market looked past large US product builds toward robust summer demand outlooks.

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NYMEX July WTI settled up 33 cents at $70.29/b, and ICE August Brent climbed 30 cents to $72.52/b.

Energy prices pulled off overnight lows in early US trading after OPEC said in its monthly oil market report that it expects the global economy to accelerate in the second half of 2021. The producer bloc kept its forecast of oil demand growth unchanged in its latest market analysis at 96.58 million b/d in 2021, up 5.95 million b/d from 2020 when the demand estimate was revised up to 90.63 million b/d.

"The recovery in global economic growth, and hence oil demand, are expected to gain momentum in 2H21," OPEC said in the report.

It was the highest front-month settle for Brent since May 16, 2019, while front-month WTI was last higher on Oct. 16, 2021.

NYMEX July RBOB settled up 97 points at $2.2122/gal, and July ULSD finished 1.39 cents higher at $2.1434/gal.

Confidence in forward demand outlooks offset concerns seen overnight surrounding large builds in US gasoline and distillate inventories reported by the US Energy Information Administration on June 9.

The builds underscored concerns that refiners had acted too quickly to ramp up production to meet uncertain demand, TD Securities analysts said, adding "these inventory increases should only see the rally ease in the near-term, rather than reverse, as the demand outlook remains favorable throughout the summer amid large scale appetite for mobility as the world continues to open up from the pandemic.

Total gasoline inventories climbed 7.05 million barrels in the week ended June 4, while distillate stocks were up 4.41 million barrels over the same period.

The ICE New York Harbor RBOB crack versus Brent climbed to $20.42/b in afternoon trading, rallying off a six-week low close of $20.22/b seen June 9.

Oil futures moved sharply lower midday after the US Treasury Department announced it had removed sanctions on a number of individuals and entities involved in the Iranian oil sector, including Ahmad Ghalebani, managing director of the National Iranian Oil Co. and a director of both Petro Suisse Intertrade Co. SA and Hong Kong Intertrade Co.

Ghalebani had been under sanction since May 2013, when Treasury said he was involved in "Iranian attempts to evade international sanctions."

Oil prices snapped lower as early reports of the decision raced through the market, but prices later stabilized after it became clear that the bulk of US sanctions on oil exports remained intact.

The news "suggests there is more progress than people thought with the talks," Price Futures Group market analyst Phil Flynn said. "It does increase the odds that as some point the sanctions will be lifted on oil, where the odds prior to this headline were leaning the other way."

"Will this change anything in the bullishness of the market, perhaps not, but it's a dynamic that the market needs to digest," Flynn said. "We are probably not going to see [Iranian] oil right this minute, but now the market has got to price in that the odds have gone up."

Brent and WTI futures each tumbled around 2% on the initial headlines, erasing the day's gains, before quickly returning to positive territory in afternoon trading.

S&P Global Platts Analytics expects the US to remove sanctions on Iran's oil, petrochemical, shipping and other sectors by September, allowing the country to boost crude and condensate exports to 1.5 million b/d by December, from 600,000 b/d in May.

However, the sharp intraday price reaction seen June 10 highlights the risk to supply outlooks these barrels pose should they return to the market sooner than expected.

If sanctions are lifted, analysts expect Iran to return to presanctions oil production of about 3.9 million b/d next year. The country pumped 2.4 million b/d in April, according to the latest S&P Global Platts OPEC+ survey.