DTN Oil

WASHINGTON (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange rallied in afternoon trade Friday, lifting the U.S. benchmark above $74 barrel (bbl) as traders positioned ahead of next week's meeting among members of the Organization of the Petroleum Exporting Countries and Russia-led partners, with the producer group expected to gradually unwind their output cuts, ensuring tight supplies on the global oil market in the second half of the year.

On the session, NYMEX August West Texas Intermediate futures rallied $0.75 to settle at $74.05 bbl and the international crude benchmark Brent for August delivery advanced $0.62 to $76.18 bbl -- the highest settlement since October 2018. In contrast to crude futures, NYMEX ULSD July futures retreated 1.30 cents to $2.1493 gallon and RBOB settled down 1.70 cents at $2.2639 gallon.

A combination of bullish factors propelled both WTI and Brent contacts to their highest settlements in 2-1/2 years on Friday, including supportive macroeconomic data in OECD countries, improved outlook for U.S. summer gasoline demand, and expectations that the OPEC+ alliance will keep supplies tight when the group meets on July 1 to discuss their production quotas for August. Wall Street Journal reported the 23-nation producer group will likely boost supplies by a modest 500,000 barrels per day (bpd) in August, preceded by 440,000 bpd increase in July and 350,000 bpd increase in June. Saudi Arabia is simultaneously unwinding its 1 million bpd voluntary cuts made beyond its group commitment. OPEC+ alliance, with about half of the world's production capacity, committed to withholding 6.6 million bpd of crude output in June, including an additional 400,000 bpd voluntary cut by Saudi Arabia, tapering to 5.76 million bpd in July.

The cautious approach by OPEC+ is said to be contingent upon the outcome of stalled U.S.-Iran nuclear negotiations and uneven demand recovery in much of the emerging and developing markets. However, some industry insiders believe a conservative approach could overtighten the global market this summer, with a few prominent oil bulls still calling for oil prices to hit $80-$100 bbl range later this year. Supporting the narrative of a tightening global market, U.S. commercial crude oil stockpiles fell for the fifth consecutive week through June 18 to about 6% below the five-year average and gasoline supplies unexpectedly dropped as demand for motor fuel fell in line with the five-year average. U.S. crude production, meanwhile, fell by 100,00 bpd from the previous week to 11.1 million bpd, indicating domestic producers are not in a hurry to raise output despite rising prices.

On the economic data front, consumer sentiment in the U.S. improved in June, reversing part of the fall registered in the prior month amid an improvement of the short-term outlook and easing of inflation expectations. The measure, however, remains well below the 101.0 level registered in February 2020, before the pandemic hit the United States.

"All of the June gain was among households with incomes above $100,000, and mainly in the way they judged future economic prospects," said Richard Curtin, the survey's chief economist.

This week's economic data proved mostly supportive for equities and oil markets, with first-time unemployment claims falling modestly, while durable goods orders climbed at the fastest pace since January. U.S. durable goods orders advanced 2.3% last month, led by an increase in new orders for transportation equipment, up 7.6% from April's revised levels, according to data published from the U.S. Census Bureau. A private survey showed U.S. factory activity climbed to a record high in June even as operators still struggle to secure raw material and qualified labor, prompting substantial price increases for both businesses and consumers. U.S. Flash manufacturing Purchasing Managers Index for June gained to 62.6 from last month's 61.5, indicating continued expansion for the domestic industry.

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