Today saw WTI Crude prices break the $90/barrel threshold for the first time since 2014.
2022 has seen WTI shoot up 20% (despite it still being the first week of February), and that’s in addition to the gain of 50% in value we saw throughout the course of 2021.
So what’s going on?
At the OPEC+ meeting Wednesday, the group announced they would be adding 400K bpd to agreed upon production levels for March, continuing their apparent strategy to slowly bring production back online.
If you recall, in April 2020 OPEC+ pulled around 10 million bpd from production in an effort to “stem the bleeding” as energy markets collapsed due to demand plummeting across the globe in the wake of sudden shutdowns for the coronavirus pandemic.
The initial OPEC+ strategy to slowly bring production back online to keep energy markets balanced appeared wise at the time, but in the wake of global economic struggles and skyrocketing prices, the group has come under enormous pressure and criticism from non-member nations, including the U.S.
Domestically, we have seen prices shoot up over the past several months in the wake of global economic concerns, growing tensions abroad, and changes to the domestic energy policy enacted by the incoming Biden Administration in January 2021.
The feeling in the U.S. is that OPEC+ needs to revise the slow and steady approach given the current circumstances in the energy market. OPEC accounts for 40% of global oil supply, so the consensus outside the group is that reupping production levels would take a lot of the pressure off markets and allow prices to settle.
In 2014, when we saw prices hit these levels before, the United States was in the midst of its fracking & shale production heyday and had become a major price influencer, having overtaken Russia & Saudi Arabia as the largest single oil producing nation. That was an enormous factor in stabilizing prices, and subsequently pushing global prices down. (For a refresher on that, read this: Fuel Marketers News: This Time it is Different )
Currently, moratoriums on drilling and financial and permitting difficulties for existent producers post the COVID price crashes are making the US essentially unable to exert the same control this time around.
In addition to the already existent demand crunch, growing tensions and war games between Russia and Ukraine are raising fears of additional, and potentially severe, supply disruptions.
Russia (an OPEC+ member) produces approximately 10 million barrels of oil per day, so any disruption of their supply output or pipelines puts a huge portion of Europe at risk for outages, and analysts just don’t see alternative supply being available to cover any Russian shortfalls.
So as always, it ultimately comes down to three things – Supply, Demand, and Politics. And as always, its anyone’s guess how any one of those factors ultimately shakes out.