| | | Nov 13, 2021,09:09am EST|23,529 views
Why Are Oil Prices So High When The U.S. Remains One Of The World’s Largest Producers?
Dan Eberhart
Contributor
Dan Eberhart is CEO of Canary, LLC.
The national average gas price is more than a dollar higher per gallon then the average price a year ... [+]
ASSOCIATED PRESSThe current oil market is unusual. The Covid-19 pandemic has created funkiness and dislocations across the global economy, and the energy sector is no exception. This is not merely a U.S. issue, energy markets are global, and while America remains a top producer, many other things are going on in the market.
Today, we’re in a situation where global oil demand is rapidly recovering back toward pre-pandemic levels due to widespread vaccinations in the largest oil and gas-consuming economies (the U.S., China, Europe). Life is getting back to normal, with greater mobility, traffic patterns.
Global consumption of all refined products, except for jet fuel, is effectively back to pre-pandemic levels. Jet fuel continues to be held back by constraints on international flights, but it’s game on for gasoline, diesel, heating oil, etc.
So, we’ve established that demand is surging. How about oil supplies? OPEC+ has kept a tight grip on supply since it agreed to its historic production cut deal in May 2020. It has not only sought to balance supply with demand as the world emerges from the pandemic — but it also has sought to restore petroleum inventories to normal levels.
Inventories of petroleum shot up massively during 2020 amid peak lockdowns. So, OPEC+’s job has been two-fold over the past 16 months — hold back enough supply to
meet demand but not oversaturate the market and make sure that global inventories for both crude oil and refined products drain. That takes exceptional supply discipline, and the Saudi-Russia-led cartel has delivered. OPEC+ has been so successful that oil prices have been steadily rising since Brent dropped below $20 a barrel at the pandemic's peak in the spring of 2020.
OPEC+ has begun the process of easing supply cuts by adding 400,000 barrels a day each month. Global inventories are now close to “normal” pre-pandemic levels, but OPEC+ remains hesitant of adding more supply at this time, even though major consuming nations including the U.S., Japan, and India have urged them to.
Why is OPEC+ not adding more supply despite prices over $85 a barrel? Because it remains wary about demand in the coming months and 2022. It remains concerned about fresh Covid-19 outbreaks, particularly after the experience with the Delta variant and their potential to curb demand. Just look at what’s happening in Eastern Europe and Russia right now — fresh outbreaks have brought about new lockdowns or mobility restrictions....;
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