OPEC Plus may be in driver’s seat as oil prices, demand rise

The pandemic has worked out far better for the group of oil producers known as OPEC Plus than might have been expected a year ago. After a self-destructive price war, and a brief episode when some oil prices fell below zero, Saudi Arabia, Russia and their allies have emerged in a position that may be stronger than when the lockdowns began.

Prices have been gliding higher since November, up 85% to about $75 a barrel for Brent crude, as global economies begin to consume more oil while OPEC Plus keeps a tight leash on output.

As the oil producers prepare for their monthly meeting Thursday, there is growing talk that the price could eventually hit $100 for the first time since 2014.

The Organization of the Petroleum Exporting Countries and its allies are holding some high cards at the moment. More and possibly explosive growth in demand is expected in the coming months as economies recover from the coronavirus pandemic.

Crude oil production in the United States, a nemesis for OPEC in recent years, has been slow to recover from a precipitous drop in 2020 as investors in producers lean on the management to restrain spending.

“If I was an OPEC Plus producer, I would feel pretty comfortable with the way things are,” said Neil Atkinson, an independent oil analyst.

These relatively shortterm trends are occurring amid a broader shift for oil markets, as concerns over climate change lead to actions that will ultimately reduce fossil fuel consumption. While these concerns weigh on the oil industry’s future, some analysts say they may contribute to further price rises over the next couple of years.

“The last oil price boom may be in sight,” analysts from the Boston Consulting Group, a business advisory firm, said in a recent paper.

According to such thinking, enormous stimulus programs in the United States and Europe will spur record growth in economies, leading oil consumption to soar, perhaps above pre-pandemic levels. At the same time, oil supplies will struggle to keep pace, for a number of reasons.

Oil companies reacted to the steep drop in prices and demand in 2020 by slashing investment in drilling for oil and gas. Pressured by regulators, courts and investors to curb their carbon emissions, oil companies have begun to pump more capital into clean energy like wind and solar.

As a result, they may be slow to increase spending to bring additional oil to market just as more drivers take to the road and airlines schedule more flights.

“The supply side and its financiers are losing their appetite for oil more quickly than the world’s consumers, putting key OPEC Plus countries firmly in the driver’s seat,” analysts from Energy Aspects, a research firm, wrote in a recent note to clients, which forecast $100-a-barrel oil in 2023-25.

The key question for Prince Abdulaziz bin Salman, the Saudi oil minister and chair of the OPEC Plus meetings, is how quickly the group should feed into the markets the 6 million barrels a day or more of oil production that it is now keeping shut in the ground. Under an agreement reached in April 2020, the group plans to continue to hold to the same output levels into early 2022.

Analysts doubt that OPEC Plus will stick to the letter of this deal — demand is likely to rise too fast — but Abdulaziz tends to lean toward caution on production increases, shrugging off forecasts of roaring consumption.

“I take my guidance from what I see today,” he said June 1. “I am not taking any guidance from a projection.”

AMR NABIL/AP The Organization of the Petroleum Exporting Countries and its allies will hold their monthly meeting Thursday. Above, an engineer tours an oil field in Saudi Arabia.