Crude prices cross $70 per barrel as western economies open

Fuel storage tanks connected to the Colonial Pipeline system in an industrial area of the Port of Baltimore in Baltimore, Maryland. Bloomberg

Crude prices rose above the $70 per barrel threshold during the second trading session as oil hit two-year highs amid growing demand in the US.

Brent, the international benchmark, rose 0.88 per cent to $70.07 per barrel at 2.23pm UAE time. West Texas Intermediate, which tracks US crude grades, was up 0.80 per cent at $66.80 per barrel.

The rally in crude prices is supported by recovering consumption in countries such as the US and China.

The rapid deployment of vaccinations in developed nations as well as the gradual return to normality in the UK have led to increased optimism about a recovery in energy demand.

Portugal eased its border restrictions and opened for tourists from the UK and the EU earlier this week. The UK also eased restrictions on May 17, allowing for greater mobility of its population.

"Reopening optimism is boosting oil prices, which now trade at around two-year highs," said Sophie Griffiths, market analyst, UK & Emea at Oanda.

"Western economies such as the US and the UK are easing lockdown restrictions, driving fuel demand and overshadowing lingering demand concerns in parts of Asia as Covid cases rise."

The increasing optimism in developed economies is in stark contrast with Asia, where India – a key crude consumer – has been dealing with a severe wave of Covid-19.

The number of infections in the world's second-most populous nation crossed 25 million on Tuesday. While India has emerged as a Covid-19 hotspot, it is not the only country in Asia grappling with a second wave of the pandemic.

"Whilst attention in Asia has been thus far focused on India in recent weeks, the previously-encouraging demand recovery in the region is now being threatened by escalations in coronavirus countermeasures in a number of other countries as well – with Japan and Taiwan at the top of the list," JBC Energy said in a note on Tuesday.

Japan is now in its third state of emergency, which was extended to cover almost the entire country more recently.