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Crude oil futures steady on infrastructure deal, tight supply outlook

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Crude oil futures steady on infrastructure deal, tight supply outlook

0300 GMT: Crude oil futures were steady during the mid-morning trade in Asia June 25 following a deal on the US infrastructure package, with the market expecting only a moderate increase in OPEC+ supply August onwards.

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At 11:00 am Singapore time (0300 GMT), the ICE August Brent futures contract was down 8 cents/b (0.11%) from the previous settle at $75.48/b while the NYMEX August light sweet crude contract was down 6 cents/b (0.08%) at $73.30/b.

On June 24, US President Joe Biden announced that a bipartisan agreement has been reached on a $973 billion infrastructure plan, which includes more than half a trillion dollars of new spending. The announcement led to higher risk appetite in the broader financial markets, with crude also benefiting from the bullish sentiment.

"After the announcement of the infrastructure package yesterday, we saw a return of risk appetite in the broader financial markets, lifting crude after it was already buoyant from the release of very positive [Energy Information Administration] data," Vandana Hari, CEO of Vanda Insights, told S&P Global Platts on June 25.

Crude also remains supported by a rosy demand outlook, as vaccination rates around the world rise, and as countries roll back mobility restrictions.

Against the backdrop of rising global oil demand, the OPEC+ coalition has met with calls to raise oil production to prevent surging energy prices from undermining the global economic recovery.

In a virtual meeting with OPEC Secretary General Mohammad Barkindo on June 24, Indian oil minister Dharmendra Pradhan raised concerns over inflationary pressure from increasing oil prices and made a renewed call for OPEC+ to phase out its production cuts.

OPEC+ is currently holding crude production at 6.2 million b/d below October 2018 levels and intends to taper this output cut to 5.76 million b/d in July. OPEC+ alliance's July 1 meeting is expected to provide guidance into output levels for August, and while reports have emerged that the coalition is considering tapering its production quota, most analysts expect a tempered rise of around 500,000 b/d.

"There is little fear in the market that OPEC+ will open the taps too much. At most, OPEC+ will increase production by another 500,000 b/d in August - a reasonable assumption given that they have historically taken a very cautious approach under Saudi Arabia - and this increase will easily be absorbed in the market," Hari said.

A possible reason that may lead to restraint from OPEC+ is the spread of the more transmissible Delta variant of the coronavirus, which has caused an uptick of infections in Israel, the UK, parts of the EU and Australia.

The producer group will also be wary of an increase in Iranian exports following a deal on the Joint Comprehensive Plan of Action, even though, a breakthrough remains elusive.

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