DTN Oil

WASHINGTON (DTN) -- With the U.S. dollar languishing near a four-month low against major currencies, West Texas Intermediate crude futures on the New York Mercantile Exchange rallied more than 3% on Monday, propelled by growing expectations that a broad-based pick-up in economic activity across developed markets would boost global energy demand this summer as vaccination rates accelerate, mask mandates are dropped, and business restrictions are further lifted.

Transportation Security Administration data show more Americans took to the skies over the past weekend than at any point since the pandemic shuttered air travel over a year ago. As summer approaches, passenger throughput at TSA checkpoints at U.S. airports reached 1.9 million on Sunday, down just 10% from two years ago. Sundays are typically highwater marks for passenger numbers and highlight the strength of leisure travel in the airline recovery. Should current trends continue, then this summer could very well see a return to pre-crisis levels in a boon for jet fuel consumption. Bloomberg estimates that pent-up travel demand could trigger a 30% surge in jet fuel use over the summer even as business traffic remains far below pre-pandemic levels.

With California, New York and Washington, D.C., planning to fully reopen their economies next month, many airlines are adding hundreds of additional flights to fly their largest schedule since March 2020.

International travel is the key factor that is likely to trigger a summer demand rebound, according to Goldman Sachs analysts, which in turn would keep oil prices elevated.

"With indications of re-opening international travel, we forecast that global demand will increase by 4.6 million barrels per day (bpd) through year-end, with most of the gains expected in the next three months. In particular, we continue to expect only limited contribution from [emerging markets] outside of China, with 75% of our demand recovery coming from [developed markets] and China, jet demand and seasonal cooling in the Middle East," Goldman Sachs said.

Markets are currently underestimating recovery in global oil demand, according to Goldman Sachs analysts, as re-openings in the Western Hemisphere are helping offset the recent hit to demand in South Asia and Latin America.

On the geopolitical front, Iran has agreed to extend its nuclear monitoring deal with the International Atomic Energy Agency by a month, opening the door for a fifth and final week in multilateral negotiations in Vienna this week. The agreement, first struck in February, allows the agency's inspectors a degree of continued access to Iranian nuclear facilities despite Tehran implementing a law to formally scale back its cooperation with the IAEA.

Last week, oil markets were rocked by an apparent breakthrough in multilateral talks in Vienna, with Iranian President Hassan Rouhani saying on May 20 that the "main agreement" has been reached, with the United States committing to lifting sanctions targeting Iran's oil, petrochemicals and shipping. If a deal is realized, S&P Platts estimates Iranian crude and condensate exports would grow from 800,000 bpd in April to 1.4 million bpd in December and 2 million bpd by July 2022.

According to the Organization of the Petroleum Exporting Countries' monthly survey, Iran's output stood at 2.43 million bpd in April -- an increase from about 2 million bpd at the end of 2020, as Iran has found increased buying interest from China, according to market sources.

On the session, NYMEX July WTI rallied $2.47 to settle at $66.05 barrel (bbl), and the international crude benchmark Brent contract for July delivery advanced $2.02 to $68.46 bbl. NYMEX June RBOB futures surged 4.92 cents or 2.4% to $2.1177 gallon, while June ULSD futures rallied over 5 cents to $2.0420 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com