Oil headed for a third straight weekly gain on signs of an improving demand outlook, with the International Energy Agency warning that the market will need extra supply next year.

Futures in New York have bounced around the $70-a-barrel mark this week, closing Thursday at the highest level since October 2018. The IEA said Friday that OPEC and its allies will need to lift output to keep the market adequately supplied, though predicted demand won’t reach pre-virus levels until late 2022.

Road traffic in the U.S. and much of Europe is largely back to pre-pandemic levels, but jet fuel remains far below where it was in 2019. There are also risks to the demand outlook as parts of Asia and Latin America continue to grapple with virus cases.

Many traders expect oil consumption to recover sharply in the second half of this year. The biggest wildcard remains Iran, with nuclear talks set to resume in Vienna at the weekend.

“Iranian crude could come back into the market at some point this year, which will be a challenge for OPEC+ if demand has not picked up,” Investec Bank Plc Head of Commodities Callum Macpherson said, adding that the “main question” is whether the aviation industry will come back.

Prices
  • West Texas Intermediate for July delivery rose 16 cents to $70.45 a barrel at 9:41 a.m. in London
    • Futures are up about 1.2% this week
  • Brent for August settlement advanced 0.3% to $72.71

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

The IEA’s take came after OPEC said Thursday that demand will jump by about 5 million barrels a day in the second half of 2021 compared with the first. SOURCE: BLOOMBERG