Oil is extending a steady recovery until 2021, aided by new signs that the world’s largest producers will not turn on the taps and flood the market.
US oil futures contracts recently rose above $ 50 a barrel for the first time since last February, the latest milestone in a recovery driven by an increase in travel and economic activity after easing coronavirus restrictions. Cutbacks in production by major Saudi Arabian suppliers to American companies are increasing the advance, giving traders confidence that demand will exceed supply.
Prices have reached new peaks since Saudi Arabia said last week it would unilaterally cut production in February as part of an agreement between the Organization of Petroleum Exporting Countries and allies like Russia. Supply restrictions inspired faith that the cartel will remain flexible with production, even if the pandemic worsens and harms demand.
US shale producers are also indicating that they are in no hurry to increase supply and instead plan to pay debts and return money to shareholders. Taken together, the commitments are expected to help the energy industry recover and highlight the recognition among producers that the economic toll caused by the pandemic is far from over, say investors and industry executives. This means that there is no need for suppliers to spend on additional production.
“I don’t think the world really needs oil right now, so there is 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% in 2021.