Oil spikes as Opec+ stick to output policy

Dubai - Crude prices jumped by three per cent, or $2.32, to $78.17 on the New York Mercantile Exchange, the highest since 2014. The Brent international benchmark hit a new 3-year high at $81.48, up 2.8 per cent



The Organisation of the Petroleum Exporting Countries, Russia and allies, known as Opec+, agreed on Monday to stick to an existing pact to hike oil output. — File photo
The Organisation of the Petroleum Exporting Countries, Russia and allies, known as Opec+, agreed on Monday to stick to an existing pact to hike oil output. — File photo
by

Muzaffar Rizvi

Published: Mon 4 Oct 2021, 7:12 PM

Oil prices on Monday hit seven-year high after Opec and allied oil producing countries stayed with their gradual approach to restoring output slashed during the pandemic, agreeing to add only 400,000 barrels per day in November.

Crude prices jumped by three per cent, or $2.32, to $78.17 on the New York Mercantile Exchange, the highest since 2014. The Brent international benchmark hit a new 3-year high at $81.48, reflecting an increase of 2.8 per cent. It rose 1.5 per cent last week for its fourth consecutive weekly gain and was back up to highs last seen in 2018.

Malik Zetchi, financial analyst for energy, metals and mining at Pictet Wealth Management, said energy commodities are hitting record prices around the globe, buoyed by a strong cyclical recovery and a lack of investments over the previous years.

“Brent crude oil prices are up more than 50 per cent year-to-date to circa $80 per barrel, natural gas prices in UK almost quadrupled to 200p/th while thermal coal prices are well on track to triple at $220/t,” Zetchi told Khaleej Times.

No change in Opec+ policy

The Organisation of the Petroleum Exporting Countries, Russia and allies, known as Opec+, agreed on Monday to stick to an existing pact to hike oil output despite consumer calls for more crude and surging prices that threaten an economic recovery from the pandemic.

“Opec+ ministers “reconfirmed the production adjustment plan” previously agreed for adding 400,000bpd in November,” the group said in a statement issued after their online ministerial talks.

Opec+ agreed in July to boost output by 400,000bpd each month until at least April 2022 to phase out 5.8 million bpd of existing production cuts.

“Opec and its Russian allies, or 40 per cent of the global oil supply, are closely monitoring the oil markets, ready to react if any crack in demand. The alliance is now meeting every month to discuss the key decisions to adopt. We expect they will maintain their politics of accommodation into 2022,” Zetchi said.

Russian deputy prime minister Alexander Novak on Monday said that the decision by the Opec+ group of leading oil producers to increase their combined output by 400,000bpd in November will help to stabilise the market.

Oil demand lifts prices

Oil prices have been driven higher by a rise in global demand and supply disruptions, pushing Brent last week above $80 to its highest in nearly three years. Brent crude roared above $82 a barrel on the news that the group would not adjust its plan, sending prices back to three-year highs and adding to inflationary pressures in the global economy.

Ipek Ozkardeskaya, senior analyst at Swissquote, said US crude surged more than 22 per cent between August and September.

“The expectation of higher Opec supply leads to some profit-taking in oil this morning. The upside in oil should remains limited at around the $80 per barrel,” she said

She said fast rise in energy crisis can only stall the economic recovery and lead to a pullback in global demand.

“It’s a fine balance, but the power is in the hands of the supply side, for the moment,” she added.

Shale output hike unlikely

Zetchi said crude oil prices are well underpinned by a rebound in demand as the vaccination campaigns are spreading around the globe. More importantly, oil producers are maintaining a discipline rarely seen in history.

“Unless a shock in demand, crude oil prices should remain firm going into the winter, at least a lot of indicators are flashing green,” he added.

“Shale oil suppliers in the US have no more the ambitions to grow volumes like in the past; capital discipline and shareholder returns are now two principles anchored in their strategies. Given investors ‘positive response to this shift, we expect US shale oil producers to maintain a strong discipline going forward,” he said.

— muzaffarrizvi@khaleejtimes.com


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