Oil rose after a U.S. government report showed rapidly declining inventories and record-high fuel demand in the midst of the peak summer driving season. Futures advanced 1% in New York on Thursday. Domestic crude and gasoline supplies tumbled last week and a gauge of fuel demand jumped to 10 million barrels a day during the week leading up to the July 4th holiday, according to the Energy Information Administration. “Clearly in the U.S., we’re seeing a strong recovery in demand,” said Quinn Kiley, a portfolio manager at Tortoise, a firm that markets roughly $8 billion in energy-related assets. “It’s a bullish setup.” Oil prices rose 11% last month before volatile trading this week in the wake of the OPEC+ impasse. Global supplies have tightened amid strong recoveries in economies such as the U.S. and China, leading to calls for the alliance to increase supply in the coming months.

In the U.S., crude supplies fell by nearly 7 million barrels last week and gasoline inventories tumbled by the most since March, according to the EIA report. The country’s crude production has remained “lackluster” despite improved prices, which suggests the crude curve will stay in backwardation, said a new research report by Goldman Sachs Group Inc. “The market did what it should do,” said Andrew Lebow, senior partner at Commodity Research Group. “It rallied to bullish news.” At the same time, OPEC+ members are also stalled over the question of how to increase supply in August and subsequent months. United Arab Emirates has blocked the agreement in a bid to raise its production quota. The ongoing stalemate has limited crude’s rally for now, said Kiley. “That’s still the overarching concern in broader markets,” he said.

Meanwhile, the spread of the delta variant is also leading to concerns. The World Health Organization urged caution on the pace of reopenings worldwide, with many regions seeing infections spreading. Countries such as Japan, Indonesia and Thailand have renewed restrictions on mobility to curb the spread. “The market is realizing that the delta variant and other variants of concern could very well slow the rate of demand recovery, even in the United States,” said Bart Melek, head of commodity strategy at TD Securities.

Oil fell for a third straight session as the dollar rose and investors awaited further signals from the OPEC+ alliance on its production policy after a dispute upended talks. Futures slipped 1.6% in New York on Wednesday. The U.S. dollar rose to a three-month high before paring gains. A higher dollar reduces the appeal of commodities priced in the currency. Investors are assessing an ongoing crisis within the producer alliance that’s threatening a global supply deficit. “The jury is still out about what the disarray within OPEC+ will amount to,” said John Kilduff, a partner at Again Capital LLC.

Oil prices have soared nearly 50% so far this year with consumption returning and the previous OPEC+ production deal keeping a lid on output. But investors remain uncertain about both the future of the alliance’s supply agreement as well as the demand recovery with the delta variant continuing to plague nations. JPMorgan Chase & Co. is among banks that anticipate a deal will be found. OPEC+ is expected to eventually agree in the coming weeks to increase production by 400,000 barrels a day each month for the rest of 2021, it said in a note. “People are just wildly uncertain” what the OPEC+ stalemate means for the future of output, said Edward Moya, senior market analyst at Oanda Corp. “August is in question and the demand warrants more production.”

Meanwhile, U.S. shale executives are locking in prices for the oil they plan to produce next year and protecting themselves against a potential market slump, people familiar with the trades said. U.S. crude production next year is forecast at 11.85 million barrels a day, the Energy Information Administration said in its monthly Short-Term Energy Outlook on Wednesday. That’s up from a previous forecast of 11.79 million barrels a day.

Saudi Aramco increased the official selling price for Arab Light by 80 cents a barrel to $2.70 above the regional benchmark for Asia. That’s the biggest month-on-month gain since January, and suggests the oil giant won’t boost supply next month.

Oil fell the most since late May as a stronger dollar spurred a broad sell-off across the commodities complex while uncertainty over OPEC’s next move loomed large in the markets. Futures in New York slid 2.4% on Tuesday. The U.S. dollar rose, making commodities priced in the currency less attractive to investors. The pullback in crude is a stark reversal from earlier in the session when futures soared to a six-year high amid an escalating fight between Saudi Arabia and the United Arab Emirates that has pushed OPEC+ into crisis and blocked a potential increase in oil supplies next month. “Lots of uncertainty is lying ahead about the group’s output policy in coming months and this will lead to increased volatility,” said Tamas Varga, an analyst at PVM Oil Associates Ltd. in London.

Oil prices have staged a massive rally this year as vaccination campaigns and economic reopenings have prompted a comeback in global fuel consumption. Tuesday’s volatility underscores how uncertain the supply picture has become while the world’s largest crude producers remain at a standstill over how to respond. Discussions among the alliance dissolved acrimoniously as the United Arab Emirates blocked a proposal led by Saudi Arabia and Russia. While the situation is fluid and negotiations could be reactivated, the breakdown has damaged the group’s image as a responsible steward of the market. “Demand has been the primary signal for the oil markets for the last year or so,” said Louise Dickson, oil markets analyst at Rystad Energy. “Now, we’ve started to reach this pivot where the supply uncertainty is driving the prices and this time, it’s actually been stoked by OPEC+ itself.”

Meanwhile, Biden administration officials have spoken with officials in Saudi Arabia and the United Arab Emirates in hopes of reaching an agreement to stem the rise in crude prices, White House Press Secretary Jen Psaki said Tuesday. The U.S. hopes talks will lead to an agreement that “will promote access to affordable and reliable energy,” Psaki said during a briefing at the White House. The impact of talks on gas prices in the U.S. is of interest to the administration, she said.

WTI hit the highest since November 2014, as the breakdown in talks left the market without extra supplies for next month. Tuesday’s subsequent pullback in prices stems from concern or “skepticism that this is not the real oil price, and the last two or three days have reminded us that OPEC+ is holding this thing together,” said Christyan Malek, head of oil and gas research at JPMorgan Chase & Co., in a Bloomberg television interview.

The 23-nation OPEC+ coalition had been on the brink of an agreement to restore production halted during the pandemic, in monthly increments of 400,000 barrels a day. That plan could still be ratified, or members may choose to informally leak barrels to eager consumers. The lack of OPEC+ unity could invite new barrels to the market and spell bearish news for current prices, said Tom Finlon of Brownsville GTR LLC, a trading and logistics firm based in Houston. “I think if you have 23 oil-producing countries that are party to an agreement, and that agreement isn’t extended, and the price of crude is in the mid-70s, that’s an engraved invitation to overproduce,” said Finlon.

Traders will also look to crude and gasoline inventory data in the U.S. released by the industry-funded American Petroleum Institute on Wednesday for signals on how strong demand is in the midst of the summer driving season.

Oil prices moved on the news, rising slightly Thursday before losing momentum Friday as traders digested the implications. International Brent crude futures traded at $76.03 a barrel, up 0.2% for the session, while WTI Crude futures settled 7 cents lower at $75.16 a barrel Friday.

The OPEC alliance had agreed in principle to increase supply by 400,000 barrels per day from August to December 2021 in order to meet rising demand, Reuters reported, citing unnamed OPEC+ sources. OPEC kingpin Saudi Arabia and non-OPEC leader Russia had also proposed extending the duration of cuts until the end of 2022, according to Reuters. However, Reuters reported that the UAE opposed these plans on the grounds that OPEC+ should change the baseline for cuts, effectively raising its production quota.

Oil eked out a small gain in a choppy trading session with traders awaiting upcoming deliberations among OPEC+ producers that may lead to a supply hike. U.S. crude futures closed 0.3% higher after switching between small gains and losses on Thursday. Oil’s recent advance pushed the commodity into overbought territory earlier this week, signaling the rally may fade. When it meets next week, the producer alliance led by Saudi Arabia and Russia is widely expected to revive some more of its halted output, according to a Bloomberg survey.

Nothing on the demand side has really changed and OPEC+ will likely increase output gradually, said Stewart Glickman, energy equity analyst at CFRA Research. “Given how disciplined they’ve been so far, I don’t think it’s going to be a free-for-all at this point.”

Crude futures are up more than 50% so far this year amid support from an economic recovery in the U.S., Europe and China. Vaccination progress has boosted reopenings, driving fuel consumption higher, and pushing the global crude benchmark above $75 a barrel this week. Meanwhile, the OPEC+ alliance has restored roughly 40% of the almost 10 million barrels of daily production it shuttered when demand collapsed last year. Ministers will gather on July 1 to assess the next step. India has once again urged OPEC and its allies to revive halted oil production as the world’s third-biggest consumer expressed “deep concern” over spiraling energy prices.

The summer travel season is well underway in the U.S. where government data this week showed rapidly depleting crude inventories. U.S. refiners are reaching for crude from as far as Asia to meet rising demand. The U.S. is “proving to be a rare bright spot” for imports of jet kerosene, with shipments into key ports rising to pre-Covid levels, according to a Vortexa report this week. However, uncertainty around increases in OPEC+ production form a risk for portfolio managers at the end of the quarter, according to Tariq Zahir, managing member of the global macro program at Tyche Capital Advisors LLC. Some may scale back positions to lock in returns in case prices dip after the meeting, he said.

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