On Monday, oil hit a three-year high after OPEC+ indicated it would maintain its current output strategy as demand for petroleum products recovers, despite calls from some countries for a more significant increase. The producer club’s plan to increase oil supply substantially increased prices, adding to inflationary pressures that consuming countries fear would derail the pandemic’s economic recovery. To phase out 5.8 million BPD of existing production cuts, OPEC+ agreed in July to increase output by 400,000 barrels per day (BPD) per month until at least April 2022.
Brent crude ended the day at $81.26 a barrel, up to $1.98, or 2.5 percent. Last week, it increased by 1.5 percent, marking the fourth consecutive weekly gain, and was back to 2018 highs. After rising for the preceding six weeks, U.S. oil finished at $77.62 a barrel, up to $1.74, or 2.3 percent, and was at its highest level since 2014. According to the International Energy Agency, demand for coal and natural gas has surpassed pre- COVID-19 highs, with oil lagging closely behind. Fossil fuels still meet three-quarters of global energy demand, with non-nuclear renewables accounting for less than a fifth.
“Given the demand picture and the outcome of the OPEC+ meeting, the overall sentiment around crude is bullish,” said John Kilduff, partner at Again Capital LLC in New York. Some countries have pressed OPEC+, which includes the Organization of Petroleum Exporting Countries, and allies, including Russia, to contribute additional barrels to the market as demand has recovered faster than projected in some regions of the world.
According to four OPEC+ sources recently quoted by Reuters, producers consider increasing output beyond what has already been agreed upon. The rise in oil costs has also been fueled by a 300 percent increase in gas prices, which has prompted a transition to fuel oil and other crude products for electricity generation and other industrial uses.