Ever since effective Covid-19 vaccines were announced in the fall of 2020, crude oil has been on a bullish journey to recovery. Trading around $75 per barrel at the moment, crude is at the highest level it has been since October 2018, at least a year and a half before the coronavirus pandemic began.
The price of oil has been moving especially fast upwards since May this year, largely fueled by hopes of a global economic recovery. With countries like the United States, United Kingdom, the European Union member states, and even China returning back to normal, there is an expectation of increased industrial activity and travel, which naturally increases the demand for oil.
OPEC and allies such as Russia met this week to once more discuss output quotas for the near future. At first it was expected that production increases of 500,000 barrels per day would be agreed from August.
Then news leaked than OPEC+ countries are actually talking about a slightly lower bump of 400K, despite pressure from Russia. However, due to an abundance of caution by Saudi Arabia, the de facto leader of OPEC, even this proposal met with resistance and any further discussions were tabled for later today, extending the meeting again.
Even so, oil prices are increasing at the moment. They have breached the $75 per barrel level and $80 is in sight, looking quite achievable at the moment. Saudi Arabia will likely not be able to completely stop an increase in the production quotas, but even that decision may already be priced in.
Factors to keep in mind which could potentially stop the oil’s price rally are the issues with Iran and Covid-19.
First off, Iran recently restarted the talks on a nuclear deal with Western countries, which can lift the sanctions on its oil exports. Nevertheless, the recent elections in Iran have led to a halt in the negotiations and right now the market is not concerned about Iran pumping more oil. Though this may change in the future.
Secondly, the delta variant of Covid-19 is haunting the markets a bit. It caused millions of very rapid infections in India this spring and has now made its way to other countries, most notably the United Kingdom, which is seeing over 20K new Covid-19 cases per day despite the country’s high vaccination rate. Considering the EU, for instance, is a bit more behind on vaccinating its population, there are real concerns about delta spreading and causing more lockdowns and a lack of demand for oil.
