While the market is anticipating the Islamic Republic’s supply will pick up again by late summer, the demand recovery will be strong enough to absorb it, Goldman Sachs Group Inc. said. The bank expects Brent futures to hit $80 a barrel in the next few months. “Seasonally we’re coming into a strong demand period, overwhelming concerns on supply,” said Peter McNally, global head for industrials, materials and energy at Third Bridge. With the U.S. continuing to reopen, air travel picking up and Europe lifting pandemic-driven lock downs, “it’s more than likely those barrels can get absorbed.”

Talks between Iran and world powers will continue in Vienna this week to resolve outstanding issues. As part of that process, Iran extended a United Nations nuclear inspections agreement, buying diplomats time to revive the landmark deal that would usher in an official return of the Persian Gulf nation to world oil markets. “Statements over the weekend in the time between the expiration of the old monitoring agreement and the signing of the new deal made it clear that the sense of optimism (over a deal) that was pressuring prices last week was probably overdone,” Bob Yawger, head of the futures division at Mizuho Securities, said in a note. “There is still a lot of work that needs to be done before a final agreement is finished.”

Global benchmark crude has been largely stuck between $60 and $70 a barrel since March, with concern about returning output and Covid-19 flare-ups counterbalanced by the demand recovery underway in some key markets. Virus cases in the U.S. were below 30,000 every day last week for the first time since June, and drivers are taking to the road again in parts of Europe, helping boost demand in the region.

The discount for U.S. benchmark crude futures against Brent shrank on Monday to its narrowest since the end of November on a settlement basis. The smaller that discount becomes, the less attractive U.S. crude exports are to foreign buyers.

IEA says no new fossil fuels. The IEA’s Net-Zero report dropped like a bombshell midweek. The IEA said that to reach net zero, there should be no new oil, gas, and coal projects. There was no shortage of proponents and critics, but either way, the report could influence how investors think about oil.

Asia snubs IEA report. “The report provides one suggestion as to how the world can reduce greenhouse gas emissions to net-zero by 2050, but it is not necessarily in line with the Japanese government’s policy,” a Japanese official told Reuters.  Officials in the Philippines also said no new fossil fuel investment would be a setback.

OPEC warns against IEA report. “The claim that no new oil and gas investments are needed post-2021 stands in stark contrast with conclusions often expressed in other IEA reports and could be the source of potential instability in oil markets if followed by some investors,” OPEC said.

U.S. and Iran near deal. The U.S. and Iran have sketched out the broad outlines of a deal to restore adherence to the 2015 nuclear agreement, which would include lifting sanctions. “We can now say that we have reached a framework or structure of an agreement,” said Iran’s deputy foreign minister Abbas Araqchi, according to Argus. Oil prices dropped by more than 2% on the news.

Oil slumped to the lowest in nearly a month as traders focused on the likelihood of a renewed nuclear deal with Iran and the potential removal of sanctions on the country’s crude exports. Futures fell 2.1% in New York on Thursday, posting a third straight decline in the longest losing streak since March. Iran’s President Hassan Rouhani said world powers have accepted that major sanctions on his country will be lifted. But he said diplomats are still discussing “details and finer points” before there’s “a final agreement.”

The prospect of a return of Iranian supply is also being reflected in Brent’s prompt timespread. The spread’s backwardation narrowed to just a few cents, a sign that market tightness may be easing. Oil is “in a holding pattern until we get to June, because that’s when Europe’s going to start to reopen and the U.S. driving season will have officially kicked off,” said Jay Hatfield, CEO of Infrastructure Capital Management. “Between now and then, the main influences will be Iran headlines as a headwind” and signs of further improvement in the U.S. market as a supportive factor. Crude futures’ tumble pushed the benchmark to close below its 50-day moving average for the first time since late April, a bearish signal that may invite more sellers into the market. While a timeline for a revival of the 2015 nuclear deal remains unclear, Iran has already been boosting its exports and Indian refiners have signaled they would be willing buyers.

India’s largest refiner said it will definitely restart buying Iranian oil when U.S. sanctions are lifted, and Hindustan Petroleum Corp. said Iran has been offering the nation’s refiners discounts on crude oil and expects these terms to be available after sanctions are withdrawn. “There continue to be positive statements out of Vienna from various participants, including Iran, that a deal is at hand,” said John Kilduff, a partner at Again Capital LLC. “Even though we know they have already been ramping up their exports, it is adding to negative market sentiment.”

This week’s Energy Information Administration report provides the first look at the impact of Colonial Pipeline’s system outage, which had spurred panic-buying and supply disruptions across much of the U.S. Southeast and East Coast last week. Nationwide gasoline inventories fell nearly 2 million barrels last week, though fuel supplies in the U.S. Gulf Coast jumped by the most on record with the pipeline down.

Investors are also watching for signs of wavering in monetary support, which has underpinned a blistering rally across commodities so far this year. Minutes from the Federal Reserve’s meeting last month showed some officials signaling they’d be open to scaling back the central bank’s massive bond purchases program “at some point.” Commodities across the board were already lower much of the session.

Commodities declined with “signals from the broader markets about inflation and the impact that could have on slowing this pace of economic growth,” said Rob Thummel, a portfolio manager at Tortoise, a firm that manages roughly $8 billion in energy-related assets. For oil specifically, “the market is concerned about uncertainties around global supply and potentially lower global demand in the short-term.”

NEWS

Oil climbed to the highest in two years with optimism building around the comeback of fuel demand in regions such as the U.S., even as Covid-19 flare-ups persist in parts of Asia.

Futures in New York advanced 1.4% on Monday to the highest since April 2019. The U.S. and China, along with parts of Europe, are rapidly recovering from the pandemic as vaccinations increase, overshadowing concerns around weaker consumption in India. In the U.S., the number of passengers at airports jumped to the highest since the pandemic began, a sign of the domestic travel revival that’s leading the way in a jet fuel demand rebound.

For the U.S., “the consensus is building around a very strong summer demand period,” said John Kilduff, a partner at Again Capital LLC. “The supply and demand balance is going to be a little short as we get deeper into the year,” supporting prices. Oil’s rally of more than 4% this month comes as even the hardest-hit parts of the oil market — namely, jet fuel — are showing signs of a revival. The number of people passing through Transportation Security Administration checkpoints at U.S. airports surged to 1.85 million on Sunday — the highest since March 2020 — pointing to the recovery in domestic U.S. air travel that’s seen underpinning a summer surge in jet fuel demand. United Airlines Holdings Inc. on Monday said it plans to operate 80% of its pre-pandemic U.S. schedule.