Oil prices rose to a two-week high on Tuesday after the United States lifted travel restrictions and other signs of a global post-pandemic recovery boosted the demand outlook, while supply remained tight.
Prices rallied after the U.S. Energy Information Administration (EIA) in its Short Term Energy Outlook (STEO) on Tuesday projected retail gasoline prices would decline over the next several months.
U.S. President Joe Biden's administration said it would use price forecasts in the STEO report to determine whether to release oil from the nation's Strategic Petroleum Reserve (SPR).
Analysts said if the STEO had shown a huge rise in projected gasoline prices, the Biden administration was likely to release lots of oil from the SPR quickly, which would have depressed prices.
Brent futures rose $1.35, or 1.6%, to settle at $84.78 a barrel, while U.S. West Texas Intermediate (WTI) crude rose $2.22, or 2.7%, to settle at $84.15. They were the highest closes for both benchmarks since Oct. 26.
The price of Brent has gained over 60% this year and hit a three-year high of $86.70 on Oct. 25, supported by recovering demand and supply restraint by the Organization of the Petroleum Exporting Countries and allies, known as OPEC+.
In the STEO, the EIA projected average prices for retail regular grade gasoline would decline from $3.32 per gallon in November to $3.16 in December and $3.00 in the first quarter of 2022.
OPEC+ added 400,000 barrels per day of crude oil to global supply at last week’s OPEC+ meeting. President Biden wanted it to add more. OPEC+ is scheduled to add 400,000 bpd a month through June 2022, Yawger said.
"Any release from the U.S. SPR, although it would likely have a temporary bearish effect on prompt prices, is not a lasting solution for an imbalance between supply and demand," said Louise Dickson, senior oil markets analyst at Rystad Energy.
"Global oil spare production capacity could diminish next year as air passengers return to the skies, removing an important cushion that the market is currently enjoying," Saudi Aramco Chief Executive Amin Nasser said.
Travelers took off for the United States again, while the passage of Biden's $1 trillion infrastructure bill and better-than-expected Chinese exports helped paint a picture of a recovering global economy.
JPMorgan Chase said global demand for oil in November was already nearly back to pre-pandemic levels of 100 million bpd, following last year's collapse.
In India, fuel demand rose in October to a seven-month peak, with gasoline sales surging to an all-time high.
Despite a tight global market, analysts forecast U.S. crude inventories rose for a third straight week, possibly helping to cap further gains in prices.