Oil is providing a steady recovery into 2021, aided by new signs that the world’s largest producers are not turning on the tap and flooding the market.
US crude oil futures recently rallied above $ 50 a barrel for the first time since February last year, the latest milestone in a revival driven by an increase in travel and economic activity following the easing of coronavirus restrictions. Production cuts by major suppliers from Saudi Arabia to US companies are spurring the march and giving traders confidence that demand will outpace supply.
Prices have hit new peaks since Saudi Arabia said last week it would cut production unilaterally in February as part of an agreement between the Organization of Petroleum Exporting Countries and allies such as Russia. The supply of ties created confidence that the cartel will remain flexible with output, even if the pandemic worsens and damages demand.
U.S. shale producers also state that they are in no rush to increase supply and instead plan to pay off debt and return money to shareholders. Taken together, the pledges should help the energy sector recover and make it clear to producers that the economic toll caused by the pandemic is far from over, say investors and industry executives. This means that suppliers do not have to spend on extra output.
“I don’t think the world really needs the oil at this point, so there’s no big reason to grow,” said Richard Dealy, president and chief operating officer of Texas oil company Pioneer Natural Resources Co. Despite the recent rise in oil prices, Pioneer still plans to limit oil production growth from zero to 5% by 2021.