Oil rises on tight inventories, demand worries limit gains

IEA expects oil market rally to ease off as high prices can provide strong incentive to boost production

LONDON:

Oil prices rose on Tuesday, supported by the prospect of tight inventories across the globe, although the gains were capped by forecasts of an increase in global production in coming months and concerns over rising coronavirus cases in Europe.

Brent crude was $0.52, or 0.6%, higher at $82.57 a barrel, by 1110 GMT, and US West Texas Intermediate (WTI) crude climbed $0.42, or 0.5%, to $81.30 a barrel.

“The oil market will remain tight in the short term, which should lend support to prices,” said Commerzbank analyst Carsten Fritsch.

Trafigura's Chief Executive Officer Jeremy Weir said the tightness in global oil markets was due to return of demand to pre-pandemic levels.  

"It is not artificially tight because of what OPEC is doing. Demand is there," Weir said at the FT Commodities Asia Summit.

However, the International Energy Agency (IEA) said the oil market rally may ease off as high prices could provide a strong incentive to boost production, particularly in the United States.  

The IEA said it expected average Brent prices to be around $71.50 per barrel in 2021 and $79.40 in 2022.

OPEC Secretary General Mohammad Barkindo also said on Tuesday that he expects an oil supply surplus as early as December and the market to remain oversupplied next year.  

"The surplus is already beginning in December. These are signals that we have to be very, very careful," he said.

The Organisation of the Petroleum Exporting Countries (OPEC) last week cut its world oil demand forecast for the fourth quarter by 330,000 barrels per day (bpd) from last month's forecast, as high energy prices hampered economic recovery from the COVID-19 pandemic.  

Still, worries about demand destruction due to the Covid-19 pandemic weighed.

Europe has again become the epicentre of the Covid-19 pandemic, prompting some governments to consider re-imposing lockdowns, while China is battling the spread of its biggest outbreak caused by the Delta variant.