The snowstorm that slammed Texas and neighboring states last week is just the latest in a series of factors that have sent oil prices soaring. It risks burying visibility of the one thing that might undo the rally — a huge reservoir of idle production capacity.
Oil prices began to move lower on Friday, but they are still close to their highest level in over a year, since well before the pandemic trashed global demand. A bull run took Brent from around $37.50 a barrel at the end of October to nearly $62.50 in the space of 15 weeks, a rise of 4% per week. Then the freak snowstorm added another couple of bucks.
The pressures behind the steady climb are well known: recovering economies, vaccine rollouts and, less often acknowledged, the huge supply cuts adhered to with unprecedented discipline among the oil producers of the Organization of Petroleum Exporting Countries and their allies in the wider OPEC+ group, which came on top of price-related slumps in production elsewhere.
Oil demand has started to recover and is expected to return even more quickly in the months ahead. The International Energy Agency sees it within 1.5 million barrels a day of pre-pandemic levels by the end of this year, compared with a 16 million-barrel deficit in the second quarter of 2020. But there are still constraints on supply, and that’s helping to drain excess stockpiles and support prices.
Oil demand has started to recover and is expected to return even more quickly in the months ahead. The International Energy Agency sees it within 1.5 million barrels a day of pre-pandemic levels by the end of this year, compared with a 16 million-barrel deficit in the second quarter of 2020. But there are still constraints on supply, and that’s helping to drain excess stockpiles and support prices.
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