Another week, another step towards $80 oil. The energy complex continued its move higher with Brent breaking above $76 on Friday and traded to levels last seen back in November 2018. US crude markets also look bullish, as they have held onto the $72 level with ease. With sentiment running high, market watchers said crude prices are likely to keep rising. Among them was a growing portion putting their neck on the line by calling for a return to $100 oil. And you can’t blame them. After all, vaccination rollouts and strong summer demand make for a potent bullish cocktail.

It was also a good week for shares on Wall Street. The S&P 500 capped a strong week on Friday with a record close as the US economy continued to display signs of improvement. Investors cheered data pointing to a renewed drop in jobless claims and a gauge of factory activity hitting a record high. All the while, weaker-than-expected inflation data eased worries about a sudden tapering in stimulus by the Federal Reserve. In other words, investors are once again focusing on prospects for post-pandemic economic growth rather than the more hawkish stance taken by the US Federal Reserve at its last policy meeting.

The feel-good factor is proliferating across the wider risk-asset complex. Now, though, it’s time to play devil’s advocate. For one, the rally in crude oil may be getting a bit ahead of itself. Both crude benchmarks are up about 50% this year. RSI indicators point to Brent and WTI being in overbought territory. Of greater concern is the fact that refined product markets lagging. Heat and RBOB prices have been left trailing in crude’s dust. If the demand story was as optimistic as the move in crude oil suggests, the move higher in prices would have been led by the refined product market. Regardless, it looks like the $70 level is going to continue to act as a floor for the market.

The next big test for the oil market is Thursday’s OPEC+ meeting. Murmurs of an output rise in August grew last week. As things stand, the producer alliance is returning 2.1 mbpd to the market from May through July as per an agreement, and still has 5.8 mbpd left to bring back by next April. And it would take a brave man to bet against a further output increase in August. For starters, crude prices anchored well into the 70s. This has made it increasingly difficult for OPEC+ to continue to hold a sizeable amount of supply from the market. Indeed, after the last OPEC+ meeting, Russian oil producers made it pretty clear that they expect the group to increase output as market conditions improve.

Secondly, global crude inventories are shrinking, and nowhere more so than in the US. According to the latest available EIA data, US crude stockpiles declined for the fifth consecutive week to their lowest since March 2020, when the pandemic began. Staying in the US, OPEC officials will also take heart from the fact that US crude output gains will likely remain limited in 2021 despite rising prices. Better said, the flattening US crude production growth profile will give them confidence about tapering supply curbs.

Last but by no means least is the delay in the resumption of supplies from Iran. A breakthrough in nuclear talks is still elusive and the prospect of sanctions relief together with the unrestricted return of Iranian barrels has dimmed since the recent election of a new hardliner president. Negotiations have been put on hold following the election of hardliner judge Ebrahim Raisi. What’s more, Iran has not responded to the U.N. nuclear watchdog on extending their monitoring agreement that expired last week. On Friday, the IAEA called for an “immediate” response from Tehran to which it said that it was under no obligation to provide an answer. Meanwhile, overnight, the US launched air strikes on Iran-backed militias on the border between Syria and Iraq. This will stoke tensions between Iran and world powers, which in turn risks scuppering recent efforts aimed at reviving the 2015 Iran nuclear deal.

The decreasing probability of Iranian crude oil returning to the market only increases the likelihood that OPEC+ will agree to some form of production increase when they meet later this week. Therefore, the question is not if but by how much. Simply put, the oil market is at the mercy of OPEC+. The odds are that it will adopt a cautious approach to returning more crude to the market from August as it has done so throughout the pandemic. There is little that can ruin the positive market tone, unless OPEC+ decides next week to increase output more than expected for August and later. In the meantime, expect oil prices to maintain a holding pattern in the run-up to Thursday’s big event.