DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange erased overnight gains to trade lower early Friday, with the U.S. crude benchmark trading just above $70 per barrel (bbl) after the International Energy Agency said global oil inventories fell below the pre-pandemic five-year average for the first time in over a year last month despite a laggard demand recovery in emerging and developing markets.

At 2.926 billion bbl, oil stockpiles held by the countries that are part of the Organization for Economic Cooperation and Development fell 1.6 million bbl below their 2015-2019 level, and crude held in a short-term floating storage declined to its lowest point since February 2020 at 99.4 million bbl. An oil glut accumulated during the pandemic has been burned off on the back of robust fuel consumption in countries like the United States, China, and the European Union even as poorer nations continue to struggle with a resurgent virus and slow economic growth rates. Those factors will continue to weigh on global oil demand this year unless vaccine distribution improves in much of the developing world, said IEA in its monthly Oil Market Report.

The Paris-based agency revised its demand projection lower for the third quarter this year by 300,000 barrels per day (bpd) but sees full recovery in fuel consumption by the end of next year.

"Global oil demand is set to return to pre-pandemic levels of 100.6 million bpd by the end of 2022, rising 5.4 million bpd in 2021 and a further 3.1 million bpd next year. The OECD accounts for 1.3 million bpd of 2022 growth while non-OECD countries contribute 1.8 million bpd, said IEA.

The rebound in fuel consumption will allow Organization of the Petroleum Exporting Countries and producers outside the cartel that are aligned with OPEC to turn on the taps next year and raise their output. IEA estimates that U.S. oil producers are on course to raise production by 900,000 bpd next year, with other non-OPEC producers adding a further 700,000 bpd to the market. This will leave room for the OPEC+ alliance to raise production by a further 1.4 million bpd above its target level for the period July to March 2022 and would still leave OPEC+ output more than 2 million bpd below their 2019 average. Still, the status of Iranian barrels represents an unknown for OPEC+ producers.

The United States lifted some sanctions Thursday on Iranian officials and energy companies, signaling Biden's administration willingness to further ease economic pressure on Tehran.

"These actions demonstrate our commitment to lifting sanctions in the event of a change in status or behavior by sanctioned persons," U.S. Secretary of State Antony Blinken said in a statement accompanying the notice of the action.

Multilateral talks in Vienna aimed at reviving the 2015 Joint Comprehensive Plan of Action stalled last week amid "lack of progress" cited by all parties to the talks. Some suggest Thursday's action by Washington are an effort to add momentum to talks, which are set to begin their sixth round of negotiations in Vienna this weekend.

IEA said Iran could quickly add 1.4 million bpd to global oil supply with the lifting of U.S. sanctions.

In early trading, NYMEX July WTI futures were slightly lower near $70.15 bbl, and the international crude benchmark Brent contract was little changed near $72.40 bbl. NYMEX July ULSD futures declined 4.9 cents to near $2.0945 gallon and the July RBOB contact dropped 4.35 cents to $2.1680 gallon.

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