By Barani Krishnan – Oil bulls had their eyes warily on OPEC as U.S. crude headed for its best quarter in a year on Wednesday on optimism about fuel demand even as producers planned output hikes and new coronavirus outbreaks were reported from a variant of the virus.

New York-traded West Texas Intermediate crude, the benchmark for U.S. oil, hovered at around $74 per barrel by lunch hour in New York, on track to a 25% gain for the second quarter.

It was WTI’s best performance in a three-month stretch since its second quarter 2020 jump of 92% when it rose from $20 levels after the Covid demand destruction that took it to minus $40 at one point.

London-traded Brent, the global benchmark for oil, was headed for an 18% gain for the quarter.

“This has been proven to be quite the quarter for oil given the better-than-expected COVID vaccination drives across the Western world, despite the Delta variant of the virus raging now,” said John Kilduff, founding partner at New York based energy hedge fund Again Capital.

“There’s also a lot of uncertainty on what OPEC could agree to in terms of output hikes for the coming months, so I’d say cautious optimism is the phrase going forth here.”

OPEC, comprising the 13-member Saudi-led Organization of the Petroleum Exporting Countries, is meeting its 10 oil producing allies led by Russia on Thursday to consider output hikes after months of sustained crude price hikes that some analysts fear might begin impacting demand.

Some members in the enlarged oil producing alliance, known as OPEC+, want a substantial production hike to maximize revenue from current prices. Russia is one of them, reportedly seeking a hike of as much as 800,000 barrels.

Much will depend on whether Saudi oil minister Abdulaziz bin Salman will allow an increase that could be large enough to derail the market’s upside momentum. The number bandied about is anywhere between 500,000 and 1 million barrels daily.

OPEC Secretary-General Mohammed Barkindo said on Tuesday that oil consumption in the second half of 2021 was expected to be 5 million barrels per day higher than in the first.

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He said oil inventories in developed countries in the OECD, or Organization of the Economic Cooperation Development, were below the 2015-19 average now.

Even so, he urged caution against a sharp production hike by OPEC+, which is still holding about 5.8 million barrels daily from the market under production cuts that began in April 2020 at the height of the demand-destroying pandemic.

Aside from OPEC cuts, oil prices, especially those of WTI, have been supported by strong inventory drawdowns over the past month as traffic in U.S. cities returned to pre-pandemic levels and refiners maximized gasoline production from crude to cater to expected fuel demand.

Data on Wednesday from the U.S. Energy Information Administration again showed a huge crude drawdown for last week, with stockpiles falling as much as 6.7 million barrels versus forecasts for a 4.7 million-barrel drop.

The big crude draw came as U.S. refiners operated last week at 92.9 percent of capacity, a level last seen in the summer of 2019, well before the onset of the pandemic last year.

Gasoline inventories rose by 1.52 million barrels last week, versus forecasts for a drawdown of 886,000 barrels — demonstrating the stepped-up refining activity.

Stockpiles of distillates that include diesel and heating oil fell by 869,000 barrels versus forecasts for a build of 486,000.

Aside from domestic consumption, exports of U.S. crude also rose last week to an average of 3.72 million barrels per day from the previous week’s average of 3.65 million.

Production of U.S. crude, meanwhile, remained stagnant at 11.2 million barrels per day.

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