OPEC resists calls to ramp up supply

Oil prices rose to multi-year highs shortly after a group of the world’s most influential oil producers decided against a significant supply increase.

Energy specialists now anticipate crude prices are likely to rise toward $100 per barrel.

On Monday, OPEC and its non-OPEC allies, known as OPEC+, announced that they will keep to their existing agreement for a gradual rise in oil output. In a statement issued shortly after relatively quick ministerial talks, OPEC+ stated it had “reconfirmed the output adjustment plan.”

The group’s production policy choice had been widely expected. Some had thought that pressure from the US and India to lower oil prices would be enough to persuade the group to deliver additional supply. On Tuesday morning, international benchmark Brent oil futures traded at $81.74 a barrel, up more than 0.5 percent for the session, while West Texas Intermediate futures traded at $77.92, up roughly 0.4 percent. Brent futures rose 2.5 percent to $81.26 on Monday, marking the highest settlement in three years. 

WTI climbed 2.3 percent to $77.62 at the previous session’s close, achieving its highest level in over seven years. Both oil contracts have risen by roughly 60% since the beginning of the year.

$100 oil?

The administration of US President Joe Biden has already urged OPEC and its partners to increase oil output to combat rising gasoline prices. The decision was made in response to fears that growing prices could hamper the economy’s recovery from the coronavirus pandemic.

Another major oil consumer, India, has also urged OPEC to increase production to guarantee reasonable prices for producers and consumers.

Kieran Clancy, the commodities analyst at Capital Economics, recognized that OPEC+ was under increasing pressure to deliver supply to the market quickly. The more pressing concern, according to Clancy, is whether OPEC+ will ever be able to reach these less ambitious expectations.

OPEC achieved less than half of its targeted rise in output in August, owing primarily to operating setbacks in Angola and Nigeria. If production continues to fall short of the group’s expectations, oil prices may remain high into next year.” According to Reuters, analysts at Bank of America Global Research indicated last month that if winter temperatures are colder than forecast, the bank could bring forward its $100 per barrel oil price target. According to the researchers, this possibility might spark a jump in demand while widening the supply gap.

Separately, Goldman Sachs analysts recently raised their year-end Brent price projection to $90 per barrel, up from $80, citing a faster-than-expected recovery in global demand.