Crude Prices Rise as Demand Outlook Improves

The oil industry is showing signs of renewed strength. Over the past 10 days, Brent crude has gained $3 to trade near $67 per barrel, while U.S. West Texas Intermediate (WTI) futures ended last week up 4.9% at approximately $64.22 per barrel. The price increase comes amid easing fears of a global demand slowdown, supported by stronger economic indicators and evolving trade discussions between the U.S. and China.

One of the key developments is the fading anxiety over global demand. U.S. economic data - such as the May payroll report - surpassed expectations, suggesting a soft landing rather than a full-blown recession. Similarly, ongoing negotiations between the U.S. and China over industrial goods, including rare earth metals, have offered a degree of optimism. President Trump described the discussions as yielding "only good reports," fueling hopes that tensions between the two largest economies may ease.

China's crude imports for May totaled 46.6 million tons, keeping year-to-date volumes slightly ahead of 2024 levels. This aligns with a broader sentiment that Asian demand remains stable, even as China's producer prices continue to deflate, a sign of weaker domestic industrial activity.

Beyond economic indicators, geopolitical risks continue to influence the oil market. The U.S. and Iran are preparing for a sixth round of nuclear talks this weekend, and tensions remain high between Russia and Ukraine. Ukraine is pushing G7 countries to lower the price cap on Russian crude exports to $30 per barrel, while EU leaders consider expanding sanctions further.

Russia's crude exports rose to 3.36 mbpd in early June, primarily from Arctic and Baltic ports. Meanwhile, Kazakhstan is ramping up crude loadings to nearly record levels in July. These shifts indicate that despite rising inventories globally, up 1 mbpd so far this year, some countries are continuing to increase export activity.

On the supply side, output growth in North America shows signs of slowing. The U.S. rig count dropped to 442, the lowest level since October 2021, and has fallen for six straight weeks. This decrease, alongside ongoing wildfires in Canada that have temporarily reduced daily crude output by about 7%, has kept more barrels onshore and lifted U.S. crude prices.

As a result, the spread between WTI and Brent has narrowed to $2.78/bbl - the tightest in nearly two years. A narrower spread typically signals that U.S. exports may slow, as shipping U.S. crude to overseas markets becomes less profitable. The tight spread is also increasingly influenced by freight rates, as WTI-Midland plays a growing role in Brent pricing benchmarks.

Speculative positioning in the market reflects growing confidence. Managed money net length in WTI increased by over 40,000 lots last week, the sharpest rise since January, driven by more long positions and fewer shorts. This bullish shift suggests traders expect further upside in crude markets, despite mixed physical supply signals and OPEC+ production adjustments.

OPEC+ nations have collectively added 1.37 mbpd since April, about 62% of the volumes they plan to return to the market. While this caps some price gains, rising geopolitical tension and softening North American output are helping balance the market for now.