Oil futures: Brent above $75/b on Eurozone confidence, Goldman bullish outlook

29 Jun 2021

Quantum Commodity Intelligence – Brent prices have bounced back in London afternoon trading Tuesday after a bullish survey of Eurozone business and household confidence outweighed concerns about the spread of the Delta variant of Covid.

The soon to expire August Brent future was trading at $75.06/b (1600 GMT), up from Monday’s close of $74.68/b, while the more liquid September contract was trading at $74.54/b, up from the prior day settle of $74.14/b.

At the same time, August WTI was trading at $73.36, up from a settle of $72.91/b on Monday.

Eurozone business and household confidence have risen sharply to a 21-month high as economies emerged from lockdown.

The European Commission’s economic sentiment indicator rose to 117.9 in June from 114.5 in May, the highest reading since 2000.

US house prices have also risen at their fastest rate in at least 30 years, leaping 14.6% year on year in April, and accelerating from March’s annual growth rate of 13.3%, according to the S&P CoreLogic Case-Shiller National Home Price Index.

Meanwhile, Goldman Sachs has reiterated its bullish outlook on oil prices in its latest report Tuesday, despite expectations of a production hike from the OPEC+ producer group and the Delta Covid variant potentially denting the demand recovery.

“A 1 million bpd August production hike - leaving 2H 2021 OPEC+ output 0.5 million bpd above our base case - would only represent $2-3/b downside to our $80/bbl Brent forecast, according to our fundamental pricing model."

Crude futures remain extremely volatile ahead of the OPEC+ meeting on July 1, when the group is expected to announce a production increase.

Delta concerns

Earlier, September Brent hit an intraday low of $73.34/b, as the market focussed on the impact of Covid.

“Cases have surged across Europe and Asia in recent weeks, leading to new travel and movement restrictions,” said Daniel Hynes, senior commodity strategist at ANZ. 

“Some of Asia’s biggest refineries are looking to cut processing rates as rising infection numbers cut demand in parts of the region.” 

Robin Mills, CEO of Qamar Energy, in a column for the UAE’s The National, said; “Concerns remain over the new coronavirus variants, particularly the now-infamous Delta strain, the slow pace of vaccination in many parts of the world and the problem of reopening Asian countries such as Japan that managed to keep infection levels low but have little established immunity.” 

Malaysia has extended its month-long lockdown, Bangladesh imposed a fresh lockdown from Monday and Indonesia, experiencing record infections, will from tomorrow impose a hard lockdown involving travel restrictions.

In Australia, new restrictions were imposed in Sydney and Darwin.

In Europe, German Chancellor Merkel had called for the EU to designate the UK a “country of concern” because the Delta variant is so widespread, which would mean UK travellers would need to quarantine if they visit the EU, regardless of whether they were already vaccinated.

Meanwhile, the July 1 OPEC+ gathering is expected to push ahead with a production increase, but at the lower end of the discussed range.

“We expect the OPEC+ alliance will try to balance the market’s need for more supply against the fragile nature of the recovery in demand. We expect a small increase of around 500kt/d in August,” said ANZ’s Hynes.