Oil hits top price in 3 years as global recovery gathers pace

The recovery in oil prices from last spring has been in part driven by improving economic conditions around the world. (Shutterstock)

• Analysts forecast higher demand for oil as the global economy recovered from the pandemic downturn more quickly than expected

DUBAI: The price of oil surged on Monday to within a few cents of $80 a barrel, its highest level for nearly three years, as traders reassessed their outlook for global economic recovery amid tightening crude supply.
Brent crude, the global benchmark, ended the day at $79.60 a barrel — a 90 per cent rise in the last year — and analysts forecast higher demand for oil as the global economy recovered from the pandemic downturn more quickly than expected.
Damien Courvalin, commodities analyst at US bank Goldman Sachs, said: “While we have long held a bullish oil view, the current global oil supply-demand deficit is larger than we expected.” Global demand recovery from the impact of the coronavirus delta variant had been faster than previous estimates, he said, and Goldman raised its year-end forecast by $10 to $90 per barrel.
Christian Malek of JP Morgan restated his forecast of $100 per barrel as all commodities go through a “supercycle” in prices. “The oil supercycle is underway,” he said.
The recovery in oil prices from last spring has been in part driven by improving economic conditions around the world, but also to the action taken by OPEC+ — the alliance of producers led by Saudi Arabia and Russia — to curb supplies when demand was weak.
Although OPEC+ has begun to reverse the cuts, with an extra 400,000 barrels per month allowed until Dec. 2022, Goldman said the oil market would be in “structural deficit” again in 2023 as demand exceeded supply and investment remained low.
Despite the increased OPEC+ output quotas, some big producers have found it difficult to meet the new limits and give the global market all it needs. Saudi Arabia, with the biggest spare capacity in OPEC+, will probablybe a big winner from rising prices and output.
Gas shortages in Europe and elsewhere are also likely to give a boost to oil prices. “Winter demand risks are further now squarely skewed to the upside as to the global gas shortage will increase oil-fired power generation,” Goldman said.
The next OPEC+ meeting will decide whether to stick to the agreed 400,000 increase, but faces a conundrum if prices continue to rise. Some energy experts believe US shale oil could be on the cusp of a resurgence that could eat into OPEC+ market share.
West Texas Intermediate, the US standard, rose above $75 a barrel yesterday, a level many producers will regard as sufficient to justify resuming drilling.