Oil set for best half since 2009 as demand recovers ahead of OPEC+ meeting

Oil is heading for its best half since 2009 as the rebound from the pandemic boosts fuel consumption and tightens the market ahead of a key OPEC+ meeting that’s expected to lead to an increase in supply.

Futures in New York rose toward $74 a barrel on Wednesday and are up more than 50% this year. The American Petroleum Institute reported that U.S. crude stockpiles fell by 8.15 million barrels last week, according to people familiar, adding to positive sentiment before OPEC+ meets on Thursday.

The alliance will be busy after delaying preliminary talks on the oil market to allow members more time to resolve differences. The hold-up comes as a Covid-19 resurgence in some regions raises concerns over the demand outlook.

The recovery in key energy consumers including the U.S. and China has helped underpin a surge in fuel demand and driven prices to the highest level since October 2018. OPEC+ predicts the market will remain in deficit for the rest of this year if the group keeps output steady, while the prospect of an imminent flood of Iranian crude is fading as talks to revive a nuclear deal drag on.

“We expect consumption to continue outstripping supply in the near term,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. in Singapore. “With more people getting vaccinated, demand worries driven by the virus should continue to diminish.”

The latest virus flare-up is causing some concerns, however. Cases have spiked in the U.K. and authorities in Australia are racing to contain outbreaks of the infectious delta variant. Other nations are renewing travel restrictions.

Prices

• West Texas Intermediate for August delivery climbed 0.6% to $73.42 a barrel on the New York Mercantile Exchange at 12:11 p.m. in Singapore after gaining 0.1% on Tuesday.

• Front-month futures are up about 11% this month.

• Brent for August settlement, which expires on Wednesday, increased 0.4% to $75.07 on the ICE Futures Europe exchange.

• The more-active September contract rose 0.4% to $74.60.

The drop in stockpiles reported by the API would be the largest since January if confirmed by Energy Information Administration data due Wednesday. The median estimate in a Bloomberg survey is for a decline of 3.85 million barrels. The API said that gasoline inventories rose by 2.42 million barrels, however.

OPEC+ had been due to convene its advisory body -- the Joint Ministerial Monitoring Committee -- on Wednesday, but that session will now take place on Thursday. Delegates said it was to allow more time for talks. Russian Deputy Prime Minister Alexander Novak sought the delay because of “presidential commitments,” according to an official letter.

The alliance is expected to increase output for August by about 550,000 barrels a day, according to a Bloomberg survey. Goldman Sachs Group Inc. forecast a similar boost, but said that even a surprise hike of 1 million barrels a day wouldn’t be enough to kill the rally.

Other market news:

• India expects fuel demand to get back to pre-virus levels by the end of 2021 as the world’s third-biggest oil consumer emerges from the clutches of the Covid-19 pandemic.

• Reliance Industries Ltd. is planning to invest in petrochemical facilities in Abu Dhabi as it strengthens energy ties with the Middle East and taps into the region’s vast hydrocarbon resources.