OPEC+ final week agreed to move ahead with planned production growth
West Texas Intermediate crude oil hit $70 a barrel for the first time in two and a half a year, as traders balanced the reopening of their global economy and OPEC’s recent decision to boost production.
WTI futures for July delivery gained up to 38 cents, or 0.5%, in early trading on Monday before pulling back on weak Chinese demand. It was the first time since October 2018 that the U.S. benchmark touched $70.
“Crude oil prices to grow as we see a recovery in the world economy and advancing demand while at the exact same time OPEC+ has been very good at restraining production that has resulted in world inventories declining,” explained Andrew Lipow, president of the Houston-based oil consulting firm Lipow Associates.
WTI prices jumped 5 percent last week since OPEC and its allies agreed to move forward with plans to improve production. The so-called OPEC+ group will raise output by 350,000 barrels every day in June and 400,000 barrels per day in July.
“There is a perception in the market which control is with OPEC,” said Mike Muller, head of Asia in Geneva-based commodity trader Vitol, in a digital event held by consultancy Gulf Intelligence, according to Bloomberg. “It will have a long time for U.S. oil to come back” to pre-pandemic levels.
U.S. manufacturers are working half of those springs which were being used before the pandemic.
That’s a result of replacements being carried offline when prices skyrocketed throughout the early days of the pandemic, causing a lot of employees to leave the industry.
Additionally, the industry remains cautious to devote to bringing back springs online after being burned in ancient 2020 when petroleum prices in the low $60s were met with higher manufacturing costs, leading to a limited return on investment.
Lipow anticipates a”continued recovery in oil demand globally,” but warns that an Iran deal could restrict potential price gains.
“The market expects that the U.S. and Iran will ultimately agree to an easing of sanctions that will enable the return of petroleum into the market.”