Oil posted its third straight weekly rise on improving demand, with the International Energy Agency warning the market will need extra supply next year. Futures in New York rose 1.9% this week, extending its rally to the highest settle since October 2018. The IEA said that OPEC and its allies will need to lift output to keep the market adequately supplied, though the agency predicted demand won’t reach pre-virus levels until late 2022. Meanwhile, road traffic in the U.S. and much of Europe is largely back to levels seen before the pandemic.

“People want to get out this summer,” said Peter McNally, global head for industrials, materials and energy at Third Bridge. “With nothing budging on U.S. supply and OPEC+ keeping production restrained,” prices should continue to move higher. Underlining the market’s strength, West Texas Intermediate’s nearest contract closed at its highest premium against the subsequent month since February. Firming in the so-called prompt spread reflects tightening supplies.

Oil has third weekly gain on rising demand outlook

While U.S. crude futures have held above the key $70-a-barrel level, traders are grappling with the prospects of Iranian supply returning to the market. Talks between the Persian Gulf nation and world powers about a 2015 nuclear deal are set to resume over the weekend. Meanwhile, there are also risks to the demand outlook in parts of Asia and Latin America as many nations continue to grapple with Covid-19 cases.

Among the more prominent moves in the oil market this week, the discount of U.S. benchmark crude futures against its global counterpart rallied to the narrowest since November. That’s driven some buyers from abroad to start shying away from Permian crudes with the narrow arbitrage making West Texas oil cargoes less attractive.

  • West Texas Intermediate for July delivery rose 62 cents to settle at $70.91 a barrel
  • Brent for August settlement advanced 17 cents to $72.69 a barrel, posting a 1.1% weekly gain

The IEA said OPEC+ will need to add about 1.4 million barrels a day — less if Iran clinches a deal to remove U.S. sanctions. That would leave the group with another 5.5 million barrels a day of capacity offline, it said, though Bloomberg calculations suggest the buffer isn’t quite as high.

Also see: Saudi Arabia Takes Bullish Oil Message Straight to Wall Street

Separately, gasoline cracks in New York fell to the lowest since March on Friday. U.S. President Joe Biden’s administration is weighing options to give relief to U.S. oil refiners from biofuel blending mandates, Reuters reported.