Brent Up 1% Ahead of Expiry, JTC Signals Demand Optimism

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange advanced in early trade Wednesday, buoyed by falling U.S. crude oil inventories and supportive macroeconomic data out of China signaling robust demand growth in the world's second largest economy, while the Joint Technical Committee for the Organization of the Petroleum Exporting Countries and allied partners offered upbeat demand projections for the second half of the year.

The JTC concluded on Tuesday that oil demand growth in countries that are part of the Organization for Economic Cooperation and Development will exhibit a healthy performance towards the latter part of the year led by a demand recovery in transportation fuels in North America and the European Union. The committee's base-case scenario assumes that OECD stockpiles could end the year more than 100 million barrels (bbl) below the 2015-2019 average.

"The overall brighter picture in relation to the pandemic recovery efforts has led to significantly improved oil market conditions and prospects for future growth," OPEC Secretary General Mohammad Barkindo said on Tuesday.

The technical panel, however, also highlighted uncertainty around the spread of COVID-19 variants, in particular the Delta variant, and the corresponding speed of vaccine rollouts, noting exacerbated infection rates in several Asia-Pacific countries and the European Union. A highly contagious Delta variant, first detected in India at the start of the year, has already triggered regional lockdowns and new travel restrictions from Sydney to Moscow.

In China there are "positive macroeconomic indicators" that will remain supported by "a surge in exports and respectable improvement in manufacturing," the JTC found.

China's June official manufacturing Purchasing Manager's Index eased slightly to 50.9 from 51.0 in May, data from the National Bureau of Statistics showed on Wednesday. The fresh reading, however, exceeded analyst expectations for a slowdown to 50.8. It remained above the 50-point mark that separates growth from contraction on a monthly basis.

The world's second-largest economy has seen a spike of COVID-19 infections in the major export province of Guangdong, undermining factory activity and manufacturing exports.

Against this backdrop, oil ministers from the OPEC+ scheduled to meet on Thursday to decide on production quotas for August. Analysts forecast the 23-nation alliance could boost production by more than 1 million barrels per day (bpd), a more modest 500,0000 million bpd or even leave production levels unchanged.

Reuters survey found the 13-member cartel pumped 26.24 million bpd in June, up 740,000 bpd from May, while compliance with pledged cuts dropped to 115% from 122% in May. The biggest increase in June came from Saudi Arabia with a 500,000 bpd production increase as it further unwound its 1 million bpd unilateral cut. With Iraq output steady, the second-biggest increase came from Iran, which has managed to raise exports since the fourth quarter despite U.S. sanctions.

Separately, American Petroleum Institute data showed on Tuesday U.S. commercial crude oil inventories tumbled 8.153 million bbl during the week-ended June 25, more than twice calls for a draw of 3.6 million bbl while stocks at the Cushing, Oklahoma hub continued lower, down 1.318 million bbl. Gasoline stockpiles posted a build of 2.418 million bbl, missing estimates for a 1.2 million bbl drop last week while distillate inventories increased slightly more than expected, up 428,000 bbl.

In early trade, NYMEX August West Texas Intermediate advanced $0.87 to $73.85 bbl, and ICE August Brent crude futures gained $0.64 to $75.40 bbl ahead of expiration this afternoon. September Brent narrowed its discount against the expiring contract to $0.37 bbl. NYMEX July RBOB futures gained 0.60 cents to $2.2450 gallon ahead of expiration, with the August contract trading near parity. July ULSD futures notched a 0.96 cents advance to $2.1315 gallon, with the August contract holding a 22-cent premium ahead of the July contract's expiration Wednesday afternoon.

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

Liubov Georges