Oil prices increased on Friday over greater hopes of better demand at the onset of the summer driving season and on expectations that major oil producers will take a cautious approach to output increases.
International benchmark Brent crude was trading at $75.72 per barrel at 07.39 GMT for a 0.21% increase after closing Thursday at $75.56 a barrel.
American benchmark West Texas Intermediate (WTI) traded at $73.47 a barrel at the same time for a 0.23% rise after ending the previous session at $73.30 per barrel.
The acceleration of vaccination campaigns against the COVID-19 pandemic, the easing of travel restrictions, and the increasing rate of domestic and international travel with the start of the summer driving season are raising oil demand and reflecting positively in higher oil prices.
British Transport Secretary Grant Shapps announced updates Thursday to the UK’s “traffic light system” for overseas travel that divides countries into red, amber and green lists.
From June 30, Malta, Madeira, the Balearic Islands, several UK overseas territories, and Caribbean islands (including Barbados) will be added to the government’s green list.
The full list of countries to be added to the red list includes Eritrea, Haiti, Dominican Republic, Mongolia, Tunisia and Uganda.
Belgium also announced that it would allow fully vaccinated people living in most non-EU countries that are considered red travel zones to make non-essential journeys to the country again.
Investors are now focused on the meeting of OPEC and non-OPEC oil-producing nations, like Russia, a grouping dubbed OPEC , on their production cut strategy after July.
The group had previously agreed to gently raise production until the end of July.
The market expectation is a cautious increase in output that is intended to avoid any serious price fluctuations.
“The next two weeks ahead of the OPEC policy meeting on 1 July 2021 will be extraordinarily tight for the oil market, OPEC is expected to loosen supply, either officially with a higher production target or unofficially with compliance slippage,” said Rystad Energy’s Oil Markets Analyst Louise Dickson.
Dickson said the group’s current target production level of 36.2 million barrels per day (bpd) for July 2021 would likely be surpassed by at least 1 million bpd of OPEC crude supply, and perhaps even more.
“If OPEC wants to keep the market in a theoretical equilibrium, the group could boost production as high as 39.5 million bpd in August 2021, but then needs to scale it down back to 36.8 million bpd for October during the shoulder demand season,” she said.
She further warned that such an increase would be a supply swing risk that OPEC would want to avoid, especially as once countries are allowed to increase production, it is harder to back-step and again tighten supply.
Positive demand sentiments were also helped by the administration of US President Joe Biden's much-awaited $1.2 trillion expenditure on an infrastructure framework.
Biden had announced his agreement earlier to support a bipartisan infrastructure framework that was formed by a group of senators. The framework involves the expenditure of $1.2 trillion over eight years, including $579 billion in new spending for the first five years.
The plan will cover investments in clean transportation, universal broadband, clean power, rebuilding roads and bridges, modernizing transit and rail networks while reducing greenhouse gas emissions.
The better-than-expected economic data from the US, the world’s largest oil consumer, also instilled hope of a sooner economic and oil demand rebound.
According to the US Commerce Department, the American economy expanded 6.4% in the first quarter, which was higher than analysts expected at 6.1%.
Initial jobless claims fell 7,000 to 411,000 last week, the Labor Department said Thursday. Analysts expected claims of 380,000 for the week ending June 19.