Oil Well Past $80 as OPEC Squeezes Tight Market

By Barani Krishnan

Oil prices surged beyond $80 per barrel on Monday, as traders reacted positively to OPEC+’s decision to make only modest increases to production amid tightening global supplies and growing inflation concerns.

Before the recent meeting of the 23-member oil producer alliance, there had been speculation that a larger increase, beyond the scheduled addition of 400,000 barrels per day, could be on the horizon. However, following the video conference involving the 13-member Saudi-led Organization of the Petroleum Exporting Countries and a coalition of 10 other nations led by Russia, it was confirmed that the increase will remain at 400,000 bpd for the next six months, unless circumstances change.

While there was no formal announcement regarding the production strategy, a Saudi official indicated to the media that the nation is comfortable with the current price levels and does not anticipate demand for oil to be negatively impacted.

No OPEC representatives specifically addressed calls from the White House or India, the world’s third-largest oil importer, for increased supplies to help lower oil prices and alleviate inflationary pressures.

The agreement solidifies OPEC+’s control over the oil market, especially when considering the challenges it faced just 18 months ago amid demand destruction brought on by the COVID-19 pandemic.

From a historic low of negative pricing at $40 per barrel in April 2020, U.S. crude benchmarks settled at $77.62 per barrel on Monday, marking an increase of $1.74 or 2.3% for the day, with earlier trading reaching a seven-year high of $78.36. Year-to-date, West Texas Intermediate crude has risen by 60%.

Meanwhile, London-traded crude, the global oil benchmark, ended Monday at $81.26 per barrel, climbing $1.98 or 2.5%. Brent crude touched $81.98 during the session and has increased by 57% this year.

Although oil prices have dramatically improved since the pandemic’s lows, some OPEC delegates privately expressed concern about the potential impact of the virus and its variants on future prices.