OPEC and a Russia-led group of oil producers agreed to continue increasing production in measured steps, delegates said yesterday, deciding against opening the taps more widely, and driving U.S. crude prices to their highest levels since 2014.
West Texas Intermediate, the main U.S. oil price, rose 2.3 per cent to close at $77.62 a barrel. Brent, the international gauge, added 2.5 per cent to end at $81.26, its highest settling price in three years. Climbing oil prices recently had analysts and economists expecting OPEC and its Russia-led allies to lift production more significantly.
Instead, the Organisation of the Petroleum Exporting Countries and Russia said the group, which calls itself OPEC+, would lift its collective output by 400,000 barrels a day in monthly installments, part of a previously agreed plan to return output to pre-COVID-19 levels.
In the U.S., oil drilling and output have been ticking higher, though they are yet to return to pre-pandemic levels. The last time domestic crude prices were so high, there were roughly 1,100 more rigs drilling for oil than the 428 at work last week, according to oil-field-services firm Baker Hughes Inc.
That was before the pandemic crushed demand for transportation fuels—and before OPEC and its market allies in late 2014 launched a price war against U.S. shale drillers by turning on the taps and flooding the market with cheap crude.
Average daily crude production in the U.S. has been 6.7 per cent lower than a year earlier while commercial stockpiles of crude, excluding the government’s Strategic Petroleum Reserve, are 15 per cent lower, according to the U.S. Energy Information Administration.
Oil’s recent gains are part of a broad rally in the price of commodities, from lumber and oats to propane and natural gas. The gains have been propelled by sharp increases in demand from reopening economies that have outpaced the ability of producers to increase output and efficiently deliver raw materials to market. Rising prices are being passed on to consumers through increases in the cost of finished goods and have stoked fears that inflation could derail the economic recovery.
OPEC+ abandoned the price war early last year when the coronavirus shut down economies and drove down demand. As economies started to reopen, OPEC+ began returning that oil to the market. It more recently agreed to add about 400,000 barrels a day of crude each month, seeking to return production to pre-COVID-19 levels by next year.
Economies have started humming again after near-hibernation during some of the worst periods of the pandemic. Natural-gas prices, too, have soared on higher demand and low inventories in the U.S. and Europe. High coal and gas prices and government efforts to cut electricity use have led to power cuts in China.
The shortages have contributed to high oil prices, analysts say. Some of the world’s gas-fired power plants can switch to using oil. Reuters