Oil pared gains with technical indicators showing the commodity is overbought, while traders assessed depleting U.S. stockpiles. Futures in New York closed 0.3% higher on Wednesday with West Texas Intermediate’s 14-day Relative Strength Index clinging near 70, a level that signals oil is due for a pullback. Meanwhile, a U.S. government report earlier showed crude supplies, gasoline inventories and stockpiles at the nation’s largest storage hub at Cushing, Oklahoma, all tumbled last week, reinforcing the expectation of limited supply during the summer driving season.

Supply declines in the U.S. are the latest sign of a tightening global crude market as fuel demand bounces back from the pandemic. Stalled nuclear talks have also deferred the prospect of renewed Iranian supplies, keeping benchmark crude prices supported. However, OPEC+ is scheduled to meet next week to discuss its production policy for August and beyond, and some nations, most notably Russia, are considering backing an increase in output. “We’re at lofty levels and priced for bullish perfection,” said John Kilduff, a partner at Again Capital LLC. “Chatter about increasing output are going to tear away some of the gains.”

Saudi Arabia’s Energy Minister said the OPEC+ alliance has a role in “taming and containing” inflationary pressures. Prince Abdulaziz said the group should remain cautious because the oil market wasn’t out of the “doldrums” created by the coronavirus pandemic. Investors are also watching the spread of the delta variant in the U.S. and Europe, which could hamper a further recovery. The growing threat of the variant prompted a fresh warning on Wednesday from Europe’s disease prevention agency to speed up vaccinations and not rush reopening. “Those are the big concerns: the delta variant causing new lockdowns, progress on Iranian sanctions and Saudi Arabia or Russia increasing production levels,” said Phil Streible, chief market strategist at Blue Line Futures LLC in Chicago.

Meanwhile, in the U.S., the Energy Information Administration report also showed crude production ticked lower last week. The U.S. shale patch, which has held output steady in the face of rising crude prices, is gearing up for a global supply shortage in the next few years, according to a survey of executives and company owners by the Federal Reserve Bank of Dallas.

Oil slid with reports that Russia and other OPEC+ nations are considering raising production in the wake of a tightly-supplied global crude market. Futures in New York fell 0.8% on Tuesday and Brent crude also declined after crossing $75 a barrel in Asia’s trading hours.

While price indicators and inventory data show a pattern of demand outstripping supply, there are concerns that OPEC+ will boost output. The producer coalition will meet next week and Russia — which jointly leads the alliance with Saudi Arabia — was reported to consider proposing the group increase supply in August. “Just the rumors that OPEC+ will consider adding additional production is enough to pull us back from the $75 mark,” said Gary Cunningham, director of market research at Tradition Energy.

Global progress in Covid-19 vaccination campaigns has underpinned a robust consumption recovery in the U.S., China and Europe, boosting crude prices. The market will remain tight through the summer, according to Goldman Sachs Group Inc.’s Jeff Currie. Market gauges are further corroborating that view, with one time spread for West Texas Intermediate expanding to the widest backwardation in seven years on Monday.

OPEC and its partners have maintained discipline toward restoring shuttered supplies during the pandemic. The roaring comeback in demand is now testing the patience of group members, who will gather on July 1 to weigh another hike. “This everyone-gets-along story is going to end as people battle for market share,” said Edward Moya, senior market analyst at Oanda Corp.

In the U.S., crude stockpiles are seen falling 3.5 million barrels last week, according to a Bloomberg survey of analysts. The industry-funded American Petroleum Institute will release its inventory data later Tuesday, while the U.S. government’s report is due Wednesday.

The global supply deficit and further spikes in oil prices could loosen the lid that the U.S. shale industry has kept on their production and Saudi Arabia will want to avoid giving producers a reason to bring wells online, according to Tariq Zahir, managing member of the global macro program at Tyche Capital Advisors LLC. “They don’t want to see shale come back quickly.”

The U.S. oil market is reaching a crunch point. Each week drivers are traveling billions of miles on interstates, just as they did in 2019, before the pandemic ravaged global oil consumption. But despite a steady ramp up in demand in recent months, wildcatters in West Texas aren’t firing up rigs like they used to, with production still down 15% from the peak last year. This dynamic is pushing U.S. crude prices higher. It’s even raising the possibility that for the first time in 5 years, West Texas Intermediate oil could get neck-to-neck with global benchmark Brent.

As little as 18 months ago, that would have been unthinkable, but the fact it’s even a peripheral view now underscores the transformation the oil market has seen during the pandemic. The move is already set to have ramifications on U.S. exports. With shale drillers not breaking their vows of capital discipline and the world’s largest economy leading the West’s reopening, U.S. refiners are clamoring to snap up more barrels domestically, rather than see them leave for export.

“It’s a function of U.S. demand accelerating out of the gate,” said Michael Tran, an analyst at RBC Capital Markets, who says that WTI has an outside shot at reaching parity to Brent, but is not his base case. “The market is realizing that WTI needs to price higher to choke off exports and incentivize imports, otherwise regional balances will become too tight by summer.

Refineries across the U.S. are running at their highest levels since before the pandemic as demand comes back with most of the economy open again. Fuel-making plants in the Midwest that most rely on Cushing, are processing crude at the highest rate since September 2019, adding further support for WTI.

Capital discipline from the shale patch coupled with more domestic demand has done a lot to whittle down inventories in Cushing, Oklahoma, the delivery point for the Nymex WTI futures contract. Seasonal stocks at Cushing are at a three-year low. The result is a growing backwardation in the U.S. oil futures market where oil for prompt delivery is more expensive than later-dated contracts. That’s prompting traders to sell their barrels now rather than hold them for later. “This is a sure sign of US crude market tightness,” said Eugene Lindell, an analyst at consultant JBC Energy GmbH.

Because of the lower output, there’s more pipeline space available currently. That’s spurred some operators to discount their transport fees to drum up business. One example is Centurion Pipeline LP and Energy Transfer LP which are asking for under $1 a barrel to move supplies on their joint system this month from Cushing to Nederland, Texas on the Gulf Coast. With cheaper pipeline costs to the region, the WTI-Brent spread doesn’t need to be as wide to sustain crude exports. The relative enthusiasm for WTI is also showing up in where traders are deploying their money. Total open interest across all WTI contracts rose above that of all Brent futures months for the first time since 2018 last month. WTI open interest is up about 15% this year, while Brent is only up 1%. There are expectations that WTI could close its gap further with Brent, but the prospect of reaching parity may be limited. For one thing, the production slowdown across America’s shale patches is seen as temporary especially given the recent price rally where Nymex futures has risen nearly 50%.

Early signs of a production comeback might already be emerging. A weekly government report showed domestic output last week rose by 200,000 barrels a day to the highest level in over a year.  “U.S. oil production will be significantly higher by the end of this year, a good 400,000 barrels a day higher, and some more next year,” Ed Morse, global head of commodities research at Citigroup said by phone.  And while that could dent the spread in the long-term, Morse says the strong levels of U.S. demand right now mean the WTI-Brent spread could tighten for a little while more yet.

Further along the oil futures curve, there are signs of market tightness. The difference between the nearest two WTI December contracts on Tuesday closed at more than $6 a barrel, the strongest close since September 2019, a sign traders are betting on a stronger market. In the U.S., crude stockpiles are expected to have dropped 2.5 million barrels last week, according to a Bloomberg survey. “It’s crunch time here in terms of drawing down continuously on inventories and getting us back to tightness globally,” said Kilduff. “That’s helping to grind higher.” However, domestic fuel demand has been somewhat lackluster at the start of the summer driving season. The API also reported on Tuesday U.S. gasoline supplies rose 2.85 million barrels last week. Inventories are currently sitting at the highest in three months and the gasoline crack spread, a rough measure of the profit from refining crude into fuel, is at around the lowest in more than three months.

Operators may have juiced imports of gasoline more than needed in the wake of the Colonial pipeline shutdown back in May, according to Bob Yawger, director of the futures division at Mizuho Securities. “You would think with crude oil ripping like this, it would drag the products along for the ride and it almost always does,” said Yawger. “You rarely see a disconnect this bad.”

Oil closed little changed amid broader market declines and as an extension of virus restrictions in the U.K. tempered optimism around a robust summer demand recovery in Western countries. Futures in New York ended the session less than 1% lower on Monday, erasing an earlier rally. British Prime Minister Boris Johnson is preparing to extend pandemic restrictions for up to four weeks due to a surge in the delta variant. Meanwhile, investors are also awaiting signals from the Federal Reserve about a timetable for scaling back emergency monetary stimulus that may affect the price of the dollar, and therefore, the price of crude. “The fact that the U.K. has to push back things four weeks is a little bit concerning for that whole robust finish to a strong European summer,” said Edward Moya, senior market analyst at Oanda Corp.

U.S. crude futures have surged about 8% so far this month as air travel and road traffic picks up in parts of the world like the U.S. and Europe amid an acceleration in Covid-19 vaccination programs. In the U.S., daily air travelers topped 2 million for the first time since the pandemic began. Speculators are the most bullish on the U.S. crude benchmark in about three years. However, technical indicators are showing crude oil in overbought territory, supporting a pullback. WTI’s 14-day Relative Strength Index climbed above 70 for the first time since March.

Oil futures rallied early in the session on fading prospects of a quick return of Iranian crude supply with negotiations around the 2015 nuclear deal stalled. Iran’s Deputy Foreign Minister Abbas Araghchi case doubt over the weekend on the chances of reviving the nuclear deal before national elections on June 18.  Chances of a deal that invites Iranian crude back into the market are not zero, though. On Monday, Germany’s foreign ministry spokeswoman Andrea Sasse said all delegations had “willingness and seriousness” to solve complex issues in the negotiations.

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Oil rose to the highest settle in over two years, drawing support from higher-than-forecast U.S. inflation data and a strong demand outlook. Futures in New York rebounded from a plunge of as much as 1.8% earlier on Thursday that followed reporting of U.S. removing sanctions on a former Iranian oil official. Crude found support with U.S. consumer prices in May topping forecasts, extending a months-long buildup in inflation that is seen helping spur more interest in alternative assets like commodities to find yield. At the same time, oil’s market structure strengthened amid recovering demand and signs global supplies may be less than expected. “The outlook for oil demand is staying strong and getting stronger,” said John Kilduff, a partner at Again Capital LLC. Meanwhile, “there’s an inflation pulse rippling through the commodity sector, and crude oil is a big participant as a base hedge element against inflation.”

Prices remain over 40% higher this year. Even as the Organization of Petroleum Exporting Countries expects the global demand recovery to gather steam in the second half of the year, the spare capacity buffer of the group and its allies have is seen being less than 80% than what it is on paper. OilX analysts also flagged “several signs” in their data that oil supplies worldwide are surprising to the downside, reflecting a combination of mature field declines and maintenance that was delayed into this year. The U.S. announced it deleted sanctions on a number of people, including former managing director of the National Iranian Oil Company. “I would not read too much into Treasury’s action today to remove sanctions against an Iranian oil official,” said Hagar Chemali, a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center. “The fact that no statement was made in connection with this de-listing is Treasury’s way of saying there isn’t much there there.”

In a sign of wider market strength, nearby futures contracts were outpacing the gains in subsequent months. The prompt time spread for Brent closed at its strongest level since April on Thursday, rising above 50 cents a barrel. That structure indicates tight supply in the Atlantic Basin region.

Meanwhile, a longer-term debate continues to rage about the viability of oil investments. Group of Seven leaders are discussing plans to shift the balance of car-buying away from gasoline to greener vehicles by the end of the decade. That comes just a day after Shell said it would hasten its reduction in carbon emissions.