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Oil price rises over $70 a barrel
Having first recovered to pre-pandemic levels in February of this year after slumping below $20 a barrel last April as the impact of Covid-19 and lockdown restrictions resulted in significant reductions in fuel demand, the international oil benchmark is now comfortably back at its pre-pandemic level.
All the signs are pointing to an increase in oil demand in Q3 and Q4 this year as the vaccine rollout continues and lockdown restrictions continue to be eased meaning traders are willing to bet on a more positive economic outlook.
Brent rose as much as 1.1 percent at $70.24 a barrel in early London trading, and despite later falling back slightly to $68.65 is it still up about a third for the year-to-date.
“The euphoria is reflected in the general belief that the economic revival will be soon coupled with oil demand recovery,” said Tamas Varga, an analyst at PVM oil brokerage in London. He cautioned, however, that the recovery still faced headwinds such as the emergence of the coronavirus variant first identified in India.
The International Energy Agency announced this week that all new oil and gas exploration projects must stop from this year if the world is to have any chance of hitting the target of limiting global warming to 1.5C above pre-industrial levels. With environmental drivers already seeing oil majors scaling back investment in future production and demand for oil expected to peak sometime in the next decade it is possible that future volumes may not keep pace with future demand increases. And this concern over supply is contributing to the current oil price gains.
Having reduced output through the pandemic, Opec and other large oil producers are slowly starting to add barrels back to the market as consumption increases, but it remains uncertain whether there is sufficient spare capacity should demand start to rise significantly above its pre-pandemic level of about 100m barrels a day.
The recovery in oil demand is still expected to be uneven for the next few months.