Oil extended gains as signs of a demand recovery from the U.S. to Europe stoke optimism among producers and analysts in the crude market.

Futures in New York surged 1.6 per cent on Wednesday. Global benchmark Brent crude closed above the psychological US$70-a-barrel mark for two consecutive days for the first time in more than two years.

Oil is in “strong demand right now,” with economies around the world opening up, Daniel Yergin, the oil historian and vice chairman at consultant IHS Markit Ltd., said in a Bloomberg Television interview. This week, Saudi Arabia’s energy minister also said the demand picture has shown signs of improvement and the International Energy Agency’s Fatih Birol said he sees a robust consumption recovery in the next six months.

“There’s plenty of room for upside here,” said Bob Yawger, head of the futures division at Mizuho Securities. “Summer and the reopening of the economy is bullish for demand,” while “it looks much less likely we’ll have Iranian barrels any time soon than it did last week.”

U.S. benchmark futures are at the highest since October 2018 and traders see prices grinding even higher with a revival of the 2015 Iran nuclear deal still likely months away and real-time data confirming a summer demand rebound underway in some countries. U.S. gasoline demand hit the highest since the pandemic began last week, according to Descartes Labs, while traffic on U.K. roads was higher than pre-pandemic levels for the first time.

Oil’s underlying structure has also firmed. The spread between the nearest two December contracts for West Texas Intermediate closed at the strongest level since September 2019. That gauge indicates growing expectations for market tightness.

Still, a solid consumption recovery in parts of Asia remains elusive. Gasoline sales in India, the world’s biggest market for motorcycles and scooters, collapsed to the lowest level in a year as a devastating second wave of COVID-19 infections savaged consumption.

Prices

• West Texas Intermediate for July delivery rose US$1.11 to settle US$68.83 a barrel
• Brent for August settlement climbed US$1.10 to end the session at US$71.35 a barrel, the highest since May 2019

Oil is also benefiting from decarbonization spending, according to Goldman Sachs Group Inc., as it’s creating economic stimulus. Commodities are being underpinned by scarcity in supplies as well as stronger demand from the U.S. and Europe after two decades in which China was the predominant buyer, Jeff Currie, Goldman’s global head of commodities research, said in Bloomberg Television interview.

“The bar for OPEC+ has been lowered in recent weeks and months given all the money that is pouring into commodities markets and supporting prices,” said Ryan Fitzmaurice, commodities strategist at Rabobank. “So all the group needs to do now is not oversupply the market.”

In the U.S., expectations are for a decline in crude stockpiles last week, according to a Bloomberg survey. The industry-funded American Petroleum Institute report its figures later Wednesday ahead of U.S. government data on Thursday, both a day later than usual because of the U.S. Memorial Day holiday.

Other market news:

• Iran’s Tehran Oil Refinery has suspended all operations, the semi-official Tasnim news agency reported, after a gas leak caused a massive fire. The incident comes on the same day that a fire caused an Iranian navy training ship to sink in the Gulf of Oman, and less than two weeks after an explosion at another refinery in Iran’s southwestern, oil-producing region of Abadan.
• Schlumberger expects the economic recovery to trigger an energy-industry supercycle that will fatten margins for the world’s biggest oilfield-services company.
• OPEC increased output last month as the group proceeded with plans to restart some of the supplies halted during the pandemic.