Not only have the crude oil prices been on an upward trend since fall 2020 - after their anemic recovery post the crash into negative territory in mid-April 2020 - but they are also now at the highest in more than 14 months. On surface it makes little sense for crude oil prices to rise in the global economy where demand has been destroyed and is constricted by the Covid-19 pandemic.
However, that is not completely correct as the demand saw a revival as countries came out of Covid-19 hibernation after the first wave. Though Covid-related restrictions continue to be in place across the globe, easing seen across many economies has sent demand for oil and gas upward – fueling oil prices. But there are other drivers to the sustained increase in oil prices. For one, amid all qualms, global demand is witnessing a recovery with vaccination drives underway in many parts of the world. Bankers across the globe also foresee a steady increase in oil prices due to return of manufacturing activity along with accelerated vaccination drives and targeted government stimuli to address the challenges posed by the pandemic. What is also keeping oil prices hot and roiling is Biden’s stimulus package of around $2 trillion to kick start the US economy.
And then, the commodity is hotter due to the delay in easing production by the OPEC+. In its last meeting held a week ago, the extended oil cartel made the unexpected move of rolling over production cuts, which drove up oil prices further.
The latest burst of energy to the crude oil was provided by the law-and-order situation in the Middle East where price was seen rising amid fears of supply disruption after Yemen’s Houthi rebel forces once again fired missiles at oil production facilities in Saudi Arabia.
However, global recovery as well as the oil market remain fragile. The IEA has cut forecasts for global oil consumption in 2021 by 200,000 barrels a day as the pandemic continues to limit travel and economic activity. The IEA has highlighted in its latest monthly report that while the outlook for oil demand in 2021 is looking brighter, the renewed lockdowns, stringent mobility restrictions and a rather slow vaccine rollout in Europe have delayed the anticipated rebound. Touching $70 a barrel, how far up the prices go depends on next move by OPEC+, as well as how soon is the vaccine able to bring global economy back to its feet.