Crude oil prices strengthened further this week after OPEC+ signaled its growing optimism about the balance between demand and supply, and confirmed that it planned to continue increasing production.
Bloomberg quoted Saudi Energy Minister Abdulaziz bin Salman as saying that crude oil demand “has shown clear signs of improvement” and Russia’s Alexander Novak as noting a “gradual economic recovery.”
The improvement in demand is what is keeping prices higher despite expectations of much more crude oil coming from Iran in the next month after U.S. sanctions are lifted, which appears to be what the majority of observers expect.
“There’s some confidence right now improving demand should be able to absorb what could be an additional 2 million barrels a day from Iran, if it materializes,” Howie Lee, an economist at Oversea-Chinese Banking Corp, told Bloomberg. “Demand from the U.S. has been driving the global consumption recovery.”
The Financial Times reported that the strong oil price rise in recent weeks has added to investor concern about rising inflation that could hamper economic recovery but then quoted Saudi Arabia’s bin Salman as dismissing inflation as cause for concern.
“I’m not the right economist to talk to [about inflation], talk to Goldman Sachs . . . and hopefully they’ll tell you it’s a minuscule impact,” the official told media after the OPEC+ meeting as quoted by the FT.
Rising prices could become a problem for demand, however. According to the FT report, analysts from within OPEC expect global oil inventories to decline fast, possibly prompting the cartel to boost production faster than originally planned.
“The market is now facing the exact opposite dilemma of April 2020. Instead of a spiralling downwards demand shock . . . producers now have just as delicate a task to bring back enough supply to match the swiftly rising oil demand,” Rystad Energy analyst Louise Dickson told the FT.
By Irina Slav for Oilprice.com
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Irina Slav
Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.
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