Brent crosses $70 mark for the first time in 2 years ahead of Opec meeting

Oil prices surged to their highest levels in two years, with Brent, the international benchmark, breaching the $70 per barrel mark during trading on Tuesday.

Brent, under which two-thirds of the world's oil is traded, reached as high as $70.88 per barrel during early trading on Tuesday for the first time since May 2019, after Opec left its global demand growth forecast largely unchanged.

The benchmark rose 2.19 per cent to reach $70.84 per barrel at 12.13pm UAE time. West Texas Intermediate, which tracks US crude grades, also reached the highest level since October 2018 and was up 2.9 per cent to reach $68.24 per barrel.

Opec+, the supergroup led by Saudi Arabia and Russia, left demand growth expectations at 6 million barrels per day, following its joint technical meeting, according to sources cited by Reuters.

The group's joint ministerial monitoring committee are convening today and in parallel to a ministerial meeting.

Opec+ plans to incrementally add 2 million bpd by July despite a surge in Covid-19 infections in several energy-consuming markets, particularly India. However, a robust recovery in Europe and the US has raised hopes that the market will be able to absorb the additional supply of crude.

"The market expectation is a gradual and cautious decrease in Opec+ production cuts, especially given that Iran is waiting ... for its sanctions to be lifted in the next couple of weeks and for ramping up its own production," said Ipek Ozkardeskaya, senior analyst at Swissquote.

"From a technical standpoint, trend and momentum indicators hint that there is no particular urge for a downside correction at the current levels," she added.

Iran’s possible return to global oil markets is expected to dominate discussions today at the meeting.

Tehran, which resumed negotiations with the US to reinstate the nuclear deal, is expected to reach a decision before Iran’s presidential elections on June 18.

Projections by London-based consultancy Facts Global Energy suggest that Iran’s production halved from 3.8 million bpd before sanctions were reimposed in 2018 to dip below 1.9 million bpd.

Tehran was exempted from Opec+ cuts last year when the alliance introduced some of the steepest production cuts in history, drawing back 9.7 million bpd from markets in response to a significant drop in demand caused by the coronavirus-induced slowdown.

"Many traders start wondering whether we could see the barrel of US crude advance to $100. Probably not just yet. A too rapid rise in oil prices would add on top of the worrying inflationary pressures and jeopardise the economic recovery," said Ms Ozkardeskaya.