US oil prices hit seven-year high of $78.03 a barrel after OPEC agreed to give an additional 400K barrels per day
US oil prices have reached their highest level since November 2014, reflecting a robust economic recovery from the COVID-19 crashes against a lack of truck and dock workers and the damage caused by Hurricane Ida to oil infrastructure.
West Texas Intermediate or WTI, one of the leading global oil price benchmarks, rose to $78.03 a barrel on Monday, a price not seen in seven years.
OPEC+, a global cartel of the world’s major oil-exporting countries, will meet via teleconference today, but they are unlikely to increase oil production to meet current demand as they are unsure of the trajectory of COVID- 19 in countries like the United States, analysts say.
In July, the group agreed to increase production by 400,000 barrels per day every month from August, after lengthy negotiations.
“It will take an oil price that stays above $80 a barrel for a period of time or significantly higher,” said Richard Bronze, chief of geopolitics at Energy Aspects, before OPEC considers producing more oil. New York Times.
US oil prices have risen due to the destruction from Hurricane Ida, supply chain problems driven by fewer workers and increased demand as the economy recovers from COVID-19 lockdowns
OPEC, a cartel of the world’s largest oil-producing countries, is unlikely to increase production any more at a meeting today. They have already agreed to an increase of 400,000 barrels per day in July
West Texas Intermediate, a global oil price benchmark, rose to its seven-year high on Monday
Last month, the US Energy Information Administration has cut its estimate of U.S. crude oil production by 200,000 barrels per day in August as a result of Hurricane Ida, which has closed or delayed at least nine refineries, the agency said.
The agency also said it expected refineries to have an average of 713,000 barrels per day less in September than without the disruptions.
The rise in oil prices is also partly caused by concerns about the running out of natural gas, which is used to generate electricity. The US is a major gas exporter and is benefiting from that fear, but natural gas production was also slowed by Hurricane Ida.
A shortage of dock workers and truck drivers makes it difficult to deliver oil and other goods to consumers, increasing demand.
‘We have had real supply chain issues for a year and a half. They have ravaged many goods,” said Stephen Roach, the former chairman of Morgan Stanley Asia CNBC.
Many large, multinational companies face a supply chain crisis that causes shipping delays and shortages of goods. Among them are Costco, FedEx, Walmart and Home Depot.
The US expected refineries to lose an average of 713K barrels per day in September as a result of Hurricane Ida. Above is a gas pump submerged in Philadelphia on Sept. 2
According to AAA, average gas prices in the US have increased by nearly $1 in the past year
A decline in demand during the early months of COVID-19 in 2020, followed by an overflow at the end of the year, has led to delays, port congestion and blockages. A lack of dock workers and containers has exacerbated the situation.
The price of Brent Crude, the other top oil benchmark around the North Sea of northwestern Europe, rose to $81.57 a barrel on Monday, after a pandemic low of $21.33 in April 2020.
At the same time, top retailers are facing the consequences of truck and driver shortages, leading to longer delays and higher costs.
Roach warned that if this continues and stagflation sets in, it will most likely coincide with the 2021 holiday spending season.
“The impact will be mainly through the price level,” Roach said. ‘We need to look much more closely at the possible risks.’
The average price of gas in the US has risen nearly $1 in the past year, according to AAA.
In August, the White House asked the Federal Trade Commission (FTC) to investigate high gas prices across the country, noting that the price of crude oil had fallen at the time and the price at the pump hadn’t.
Biden also asked OPEC to ramp up oil production, but the group of countries appears to be proceeding cautiously when it comes to producing more oil.
Last week, Morgan Stanley warned that the surge in crude oil prices could lead to “demand destruction,” a period when people would no longer want the good because it costs too much or is too hard to get.
The price of Brent Crude, another top oil benchmark, rose to $81.57 a barrel on Monday. An expert says OPEC should see prices above $80 for a long time to increase production
“Oil prices are decoupled from the marginal cost of supply. Instead, they travel to the level where demand destruction begins, which we estimate at ~$80/bbl,” Morgan Stanley wrote in June.
However, the banking firm noted that the tipping point would be closer to $85 a barrel.
Morgan Stanley predicted the global oil supply chain would tighten, citing an average of 3 million barrels of crude drawn last month, compared to the 1.9 million drawn in previous months.
“These draws are high and suggest the market is more understaffed than commonly believed,” bank analysts Martijn Rats and Amy Sergeant told CNBC.
In England Prime Minister Boris Johnson tried to downplay fears of rising gas prices by telling Sky News: ‘I understand how mad it has been for people, the situation is stabilizing.
“It’s a problem that is really driven by demand and not supply, although of course we are taking all the precautions we can.
“You have to take every possible precaution, but the supplies are coming in, they are coming in the forecourts and people have to go about their business in the normal way.”
OPECs agreed in July to increase production by 400,000 barrels per day each month. The move is expected to add about two percent to global supply by the end of the year.