By Natalie DeCoste
As inflation and the cost of consumer goods continues to rise, oil prices are at the highest levels they have been in more than two years.
Brent was up 73 cents, or 1%, making it $73.42 per barrel, its highest since May 2019. Meanwhile, U.S. West Texas Intermediate gained 75 cents, or 1.1%, bringing it to $71.66 per barrel, its highest since October 2018. U.S. crude hit $71.48 a barrel on Monday, its highest level in more than two and a half years. Crude’s price has nearly doubled since the end of October.
As the U.S. reopens and vaccination rates grow, the prospect of fuel demand from consumers returning to everyday life has pushed prices higher. U.S. consumption has surged lately, and this demand is expected to remain high over the coming years.
“The two leading crude markers are trading at (almost) two-and-a-half-year highs amid a potent bullish cocktail of demand optimism and OPEC+ supply cuts. This backdrop of strengthening oil fundamentals have helped underpin heightened levels of trading activity,” said Stephen Brennock of oil broker PVM.
The Organization of the Petroleum Exporting Countries, better known as OPEC, has managed output cuts for oil to keep its price relatively high, contributing to the price increases consumers now face. When the pandemic hit in January 2020, oil demand was devastated. As a response, OPEC slashed production by a record 9.7 million BPD to keep prices stable.
The International Energy Agency recently urged OPEC and its allies to increase oil production back to pre-pandemic levels faster than the organization planned. Earlier in June, the organization announced a production increase but that it would be an output of 5.8 million BPD, still below pre-COVID levels.
Even as output increases in the months ahead, some analysts think production will struggle to catch up to demand. The International Energy Agency projects that demand will be on the rise at least through 2026.
The price increases and oil demand coincides with an unprecedented move to greener energy options. As a result, some Wall Street analysts are backing green energy rather than oil and expect the popularity of greener options to depress spending on oil extraction, setting the stage for supply shortages and higher fuel prices.
Planned investment in oil supply globally has fallen about $600 billion short of what is expected will be needed to meet demand by 2030, according to JPMorgan Chase & Co. analyst Christyan Malek.
Major companies in the oil industry are divesting from fossil fuels. According to a report released by Reuter, Royal Dutch Shell is considering selling its assets in the Permian Basin, the largest oilfield in the U.S., indicating significant differences in the industry are potentially on the horizon.
“I’m bullish on electric vehicles. It still takes time before they can take a meaningful chunk out of oil demand,” said Jason Bordoff, a former Obama administration energy adviser and the founding director of Columbia University’s Center on Global Energy Policy.
