Oil slipped after hitting $70 a barrel for the first time since October 2018 as a rally driven by signs of a tightening market stalled.

Futures dropped 0.3% in New York after rising as much as 0.6% earlier following a second weekly gain. Despite oil easing on Monday, the outlook for demand remains bullish as vaccination rates accelerate, driving greater mobility. OPEC+ appears in control of crude prices, with U.S. production lagging pre-pandemic levels, according to Mike Muller, Vitol Group’s head of Asia.

A robust rebound from the virus in the U.S., China and Europe has driven prices more than 40% higher this year, although the Covid-19 comeback in Asia is a reminder that the recovery will be uneven. Russia’s Rosneft PJSC, meanwhile, warned of an impending shortfall in supply as global producers increasingly channel funds into a “hasty” energy transition.

“The focus remains on demand, with traffic data suggesting the summer driving season should be positive,” said Daniel Hynes, senior commodities strategist at Australia and New Zealand Banking Group Ltd. “The market should tighten up even further over coming weeks.”

The market has firmed in a bullish structure. The prompt time spread for Brent is 41 cents in backwardation — where near-dated prices are more expensive than later-dated ones. That compares with 37 cents a week earlier.

The decline in U.S. drilling and output makes OPEC+’s job of managing markets easier, Vitol’s Muller said at a conference on Sunday. Given delays in talks between Tehran and world powers on reviving a nuclear deal, it’s less likely more Iranian supply will hit the market before the fourth quarter, he added.

Continue…