Oil is heading for a steady recovery until 2021, helped by new signs that the world’s largest producers will not turn on the breakwaters and flood the market.
U.S. crude futures have recently risen above $ 50 a barrel for the first time since last February, the latest milestone in a rebound driven by an increase in travel and economic activity since the suppression of coronavirus restrictions. Production cuts from large suppliers from Saudi Arabia to U.S. companies are fueling the advance, giving traders that demand will outstrip supply.
Prices have hit new highs since Saudi Arabia said last week it would unilaterally cut production in February as part of an agreement by the Organization of Petroleum and Allied Exporting Countries like Russia. The frequency of supply instilled the faith that the cartel will remain flexible with production, even if the pandemic worsens and harms demand.
U.S. shale producers also say they are in no hurry to increase supply and instead plan to pay off debt and return cash to shareholders. Taken together, the commitments should help the energy industry recover and highlight recognition among producers that the economic toll caused by the pandemic is far from over, say investors and industry executives. This means that it is not necessary for suppliers to spend on additional production.
“I don’t think the world really needs oil right now, so there’s not a 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.