Oil prices hit 2-year high

Oil prices rose by 1 percent early on Monday, driven by expectations that recovering demand with summer travel and reopening economies will easily accommodate the gradual increase in OPEC+ production.

High oil prices are caused by high demand, low supply, OPEC quotas, or a drop in the dollar’s value.

But oil prices rose even more sharply on Tuesday, with Brent topping $71 per barrel, the highest level in more than two and a half years. “The demand growth is pretty OK, the OPEC+ discipline is very good, inventories are going down,” Fereidun Fesharaki, Chairman of Consultants FGE, said in a Bloomberg television interview. “If there is no Iranian shadow on the market, prices could hit $75-$80 by the middle of the third quarter.”

OPEC+ reaffirms trajectory

OPEC+ officials met for a virtual meeting on Tuesday and reaffirmed its current plans to gradually increase production in July. The Joint Technical Committee (JTC) of the OPEC+ group maintained at a meeting on Monday its outlook for global oil demand growth at around 6 million barrels per day (bpd) this year.

Bullish sentiment gathers again

Even with Brent at the $70 marker, some analysts see more room to run.

“We see demand outstripping supply in the order of 650,000 barrels per day and 950,000 bpd in Q3 and Q4 respectively,” ANZ analysts said.

Supply shortage?

“The market is now facing the exact opposite dilemma of April 2020,” said Louise Dickson, an analyst at consultancy Rystad Energy. “Producers now have just as delicate of a task to bring back enough supply to match the swiftly rising oil demand. If markets over-tighten, a flare-up in prices could jeopardize the global economic recovery.”

Iran aims to ramp up supply

The U.S. and Iran are nearing a deal to restore the terms of the 2015 nuclear agreement, and Tehran is already eyeing an increase in oil production.

“The next Iranian government should make it a top priority to raise oil production to 6.5 million barrels a day,” Iranian oil minister Bijan Namdar Zanganeh told reporters. The higher output will “improve the country’s security and political might.”

Separately, an Iranian official said they hoped for a deal by August, dampening prospects that a deal would be reached this week.

OPEC+ enjoys new era with oil majors constrained

Western oil companies are under escalating pressure to constrain their production as the energy transition gathers pace. But with supply kept in check, OPEC+ could see new tailwinds with space to bring production back online even as oil prices remain at relatively high levels.

“We see a shift from stigmatization toward criminalization of investing in higher oil production,” said Bob McNally, President of Consultant Rapidan Energy Group and a former White House official.

Equinor and Exxon go forward with $8 billion Brazil project

Equinor (NYSE: EQNR) and ExxonMobil (NYSE: XOM) said on Tuesday that they would proceed with an $8 billion oil field in Brazil, which is slated to come online in 2024 and have a production capacity of 220,000 bpd.