The fact that oil prices maintain and even extend a bit their high levels this week is a clear sign that the market considers a $70 plus dollar level sustainable for a barrel of oil.
There are distractions, not every country in the world is on a full recovery mode yet, but at the moment no hiccup seems able to reverse the bullish momentum ushered in by strong summer demand.
But it’s not only summer demand, it’s also progress in vaccination campaigns and major pushes by governments to convince people to inoculate.
It’s old news by now, but OPEC+ is also offering a pillar of support.
There were some concerns before this week’s OPEC+ meeting that members would be tempted to increase production more than the current deal suggests, but the group maintained its discipline and with it the high oil prices.
There will be room for more supply though as in the second part of 2021 crude oil demand will overtake supply, which will invite willing producing countries to plug in the gap.
Some market participants thought that a comeback of Iranian supply would offset the summer demand uptick, but the negotiations now have slowed, another helping hand for the oil bulls.
What is important to understand, and a key takeaway of oil’s performance this week is that despite the high levels, oil prices are not really bubbling.
The strong prices are justified in today’s market and will likely stay until at least through mid-summer, namely July, when the current OPEC+ consensus expires.
What happens after July is anyone’s guess as a lot will depend on the new policy that will be outlined by OPEC+.
A conservative production scenario could maintain high levels and even extend them, but if OPEC+ decides it’s party time, then a flood of extra supply could lower price levels.