The OPEC oil cartel and allied producing countries plan to restore 2.1 million barrels per day of crude production, balancing fears that COVID-19 outbreaks in some countries will sap demand against surging energy needs in recovering economies.
Energy ministers made the decision during an online meeting Tuesday.
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Saudi Energy Minister Prince Abdulaziz bin Salman said recent market developments proved the agreement to gradually increase production, made in April and reconfirmed Tuesday, was “the right decision.” There are still “clouds on the horizon” regarding the recovery and demand for energy, he said.
The cartel decided to stay the course decided at earlier meetings to raise production by 2.1 million barrels per day from May to July. The group plans to add back 350,000 barrels per day in June and 440,000 barrels per day in July. Saudi Arabia is also gradually adding back 1 million barrels in voluntary cuts it made above and beyond its group commitment.
The combined OPEC Plus grouping of members led by Saudi Arabia and non-members, chief among them Russia, is facing concerns renewed COVID-19 outbreaks in countries such as India, a major oil consumer, will hurt global demand and weigh on prices. Oil producing countries made drastic cuts to support prices during the worst of the pandemic slowdown in 2020 and must now judge how much additional oil the market needs as producers slowly add more production.
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But prices have recovered, closing at multi-year highs on Tuesday, and the recoveries in the US, Europe and Asia are expected to drive energy demand higher in the second half of the year as people travel more and use more fuel. The U.S. driving season began over Memorial Day weekend and increasing numbers of Americans have been vaccinated, leaving people feeling freer to travel and take longer trips by car.
On Tuesday the price of benchmark U.S. crude rose 2% to $67.72 per barrel after jumping nearly 4%. Brent crude, the European standard, traded 2.7% higher at $71.17 but closed at $70.25 per barrel. The prices were the highest in two years for Brent crude and in nearly three years for U.S. crude.
On Wednesday, oil prices rose modestly, with benchmark U.S. crude up 16 cents to $67.88 per barrel. Brent crude picked up 18 cents to $70.43 per barrel.
An additional factor complicating market estimates is the possible return to the market of more Iranian oil, depending on the outcome of talks over Iran’s nuclear program. Paul Sheldon, chief geopolitical risk analyst at S&P Global Platts, said he expects a framework nuclear deal will be reached before Iran’s June 18 election, allowing Iranian supply to rise by 1.05 million barrels per day between May levels and December.
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Bin Salman said that the prospect of more Iranian oil coming to market was not discussed at the brief meeting, which he said lasted less than half an hour.
Oil prices have risen more than 30% since the start of the year. That has meant higher costs for motorists in the U.S., where crude makes up about half the price of a gallon of gasoline. Holiday travelers paid the highest gas prices since 2014 at a national average of $3.03 per gallon, $1.12 more than last year. Prices in the western states were even higher; Californians paid $4.20 per gallon.