Crude dropped on Tuesday as investors cashed in on a recent rally, but market sentiment remained solid on hopes for a quick recovery in oil demand in the U.S. and European markets and fading expectations for an early return of Iranian crude.
U.S. West Texas Intermediate (WTI) crude for July was at $72.93 a barrel, down 9 cents, or 0.13%.
Brent gained 1.9% and WTI jumped 2.8% on Monday.
Both benchmarks have risen for the past four weeks on optimism over the pace of global COVID-19 vaccinations and expected pick-up in summer travel. The rebound has pushed up spot premiums for crude in Asia and Europe to multi-month highs.
“Oil prices took a breather, but the markets’ tone remains firm amid expectations that fuel demand will pick up quickly along with economic recovery in Europe and the United States,” said Toshitaka Tazawa, analyst at commodities broker Fujitomi Co.
BofA Global Research raised its Brent crude price forecasts for this year and next, saying that tighter oil supply and recovering demand could push oil briefly to $100 per barrel in 2022.
Investors are focusing on weekly U.S. inventory data, Fujitomi Co’s Tazawa said, as crude oil stockpiles have fallen for a fourth consecutive week.
The Energy Information Administration said last week that U.S. crude oil stockpiles dropped sharply in the week to June 11 as refineries boosted operations to their highest since January 2020, signalling continued improvement in demand.
U.S. crude stocks were expected to drop for the fifth consecutive week, while distillate and gasoline were seen rising last week, a preliminary Reuters poll showed on Monday.
The price gap between the world’s two most actively traded oil contracts narrowed to its lowest in more than seven months, demonstrating that U.S. oil output is still in the COVID-19 doldrums with the market likely to remain undersupplied.
Negotiations to revive the Iran nuclear deal took a pause on Sunday after hardline judge Ebrahim Raisi won the country’s presidential election.
Raisi on Monday backed talks between Iran and six world powers to revive a 2015 nuclear deal but flatly rejected meeting U.S. President Joe Biden, even if Washington removed all sanctions.
“The lower probability of Iranian crude oil returning to the market due to the new hardline president is also supporting the market,” Fujitomi’s Tazawa said.