Despite COVID-related restrictions in parts of Asia, the market is buoyed by demand from the US and parts of Europe.
The Organization of the Petroleum Exporting Countries (OPEC) oil cartel and allied producing countries, a grouping known as OPEC+, have confirmed plans to restore 2.1 million barrels of crude per day of oil output, balancing fears that continuing COVID-19 outbreaks in some countries will sap demand against the rising need for energy in recovering economies around the globe.
Energy ministers made the decision during an online meeting Tuesday.
Saudi Energy Minister Prince Abdulaziz bin Salman said recent market developments proved that the decision to gradually increase production, originally made in April and reconfirmed Tuesday, was “the right decision”. He said that there were still “clouds on the horizon” regarding the recovery and demand for energy.
The cartel decided to stay the course at earlier meetings to raise production by 2.1 million barrels per day from May to July. The group planned to add back 350,000 barrels per day in June and 440,000 barrels per day in July. At the same time, Saudi Arabia is gradually adding back one million barrels in voluntary cuts that it made above and beyond its group commitment.
The combined OPEC+ format of members led by Saudi Arabia and non-members, chief among them Russia, faces concerns that renewed COVID-19 outbreaks in countries such as India, a major oil consumer, will hurt global demand and weigh on prices. Oil-producing countries made drastic cuts to support prices during the worst of the coronavirus pandemic slowdown in 2020 and must now judge how much additional oil the market needs as producers slowly add more production.
The economic recovery in the United States, Europe and Asia is expected to increase energy demand in the second half of the year as people travel more and use more fuel, whether it’s petrol or jet fuel. The US driving season began over the Memorial Day holiday weekend (May 29-31) and increasing numbers of Americans have been vaccinated, leaving people feeling freer to travel and take longer trips by car.
On Tuesday the price of benchmark US crude rose 3.6 percent to $68.66. Brent crude, the European standard, traded 2.7 percent higher at $71.17.
An additional factor complicating market estimates is the possible return to the market of more Iranian oil, depending on the outcome of talks over Iran’s nuclear programme. Paul Sheldon, chief geopolitical risk analyst at S&P Global Platts, said he expects a framework nuclear deal will be reached before Iran’s June 18 election, allowing Iranian supply to rise by 1.05 million barrels per day between May levels and December.
Bin Salman said that the prospect of more Iranian oil coming to market was not discussed at the brief meeting, which he said lasted less than half an hour.
Oil prices have risen more than 30 percent since the start of the year. That has meant higher costs for motorists in the US, where crude makes up about half the price of a gallon of petrol. Holiday travellers paid the highest petrol prices since 2014 at a national average of 80 cents per litre – $3.03 per gallon, or $1.12 more than last year. Prices in the western states were even higher; Californians paid $1.10 per litre or $4.20 per gallon.