Oil Price Fundamental Daily Forecast – Prices Soar as Iran Supply Fears Fade; OPEC+ to Hold Output Steady

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Tuesday ahead of an OPEC+ meeting and on optimism that fuel demand will grow in coming months as the U.S. summer driving season gets under way. The price action suggests investors have little concern that COVID outbreaks in India and other parts of Asia, and the possibility of increased supply from Iran, will be little more than short-term events.

At 11:31 GMT, July WTI crude oil is trading $68.16, up $1.25 or +1.87% and August Brent crude oil is at $70.79, up $1.46 or 2.11%.

OPEC+ Production Likely to Remain Unchanged

OPEC and its allies, including Russia, is expected to refrain from making any major changes to policy and stick to the existing pace of gradually easing oil supply restraints at a meeting on Tuesday, June 1, three OPEC sources told Reuters, as producers balance expectations of a recovery in demand against a possible increase in Iranian supply.

The group, known as OPEC+, decided in April to increase production by 2.1 million barrels per day (bpd) from May to July, as it anticipated global demand would rise despite high numbers of coronavirus cases in India and other parts of Asia.

Since reaching that conclusion around April 1, crude has extended its gains by more than 30% for the year. Although some see the prospect of increased output from Iran as potentially limiting the market’s upside, soaring prices lately suggest this news is being downplayed even as talks on reviving its nuclear deal move forward.

Reuters reported that OPEC Secretary General Mohammad Barkindo said he did not expect higher Iranian supply to cause problems, a statement that bullish traders seem to have accepted.

“We anticipate that the expected return of Iranian production and exports to the global market will occur in an orderly and transparent fashion,” he said in a statement.

OPEC+ experts confirmed earlier forecasts for a sizeable, 6 million bpd jump in oil demand in 2021 as the world recovers from the COVID-19 pandemic, OPEC+ sources said.

The OPEC+ sources said they do not expect OPEC+ to decide on output policy beyond July, since the outlook for Iranian supply is not clear, Reuters wrote. OPEC has another meeting planned for June 24.

Finally, Reuters reported that OPEC+ cut output by a record 9.7 million bpd last year as demand collapsed. As of July, the OPEC+ curbs will stand at 5.8 million bpd.

Daily Outlook

The strong rally clearly indicates that investors are banking on the strong demand to continue. This is likely to be reflected in this week’s American Petroleum Institute (API) and Energy Information Administration (EIA) weekly gasoline inventories numbers.

According to reports, more than 34 million Americans were expected to take to the highways between May 27 and May 31, the holiday weekend which marks the start of the summer driving season. Air travel is also expected to increase considerably throughout the summer.

Generally speaking, demand is expected to be the factor driving the upside momentum, while any decision from OPEC+ is expected to provide the support.

OPEC+ wants to keep prices stable so excessive speculation could lead the group to increase output in July or August.