OPEC and its Russia-led oil-producing allies agreed to unleash millions of barrels of bottled-up crude over the next two years, committing to restore all the cuts they made at the start of the Covid-19 pandemic as many economies pick up and crude demand recovers.
Underscoring the uncertain speed of a full economic recovery and a return of pre-pandemic oil demand, the group chose to move gradually, agreeing to modest, monthly installments of new oil through the latter end of 2022. Oil prices have eased recently in anticipation of a deal, but analysts said the gradual nature of the output boost could continue to pressure prices.
The prospect of an OPEC deal had already led to a drop in prices, which have recovered strongly this year. Brent, the international benchmark, and West Texas Intermediate have both fallen about 5% in recent days, as hope grew for an OPEC deal. Brent closed above $73 a barrel, and WTI finished above $71 a barrel Friday, both off recent, multiyear highs.
The move also demonstrates the world’s push-pull over its reliance on fossils fuels. Europe and the U.S. have pushed ambitious plans to wean themselves from carbon-emitting fuels like oil. But the world is still largely dependent on plentiful supplies of such fuels, including oil.
The Biden administration, while pushing for an energy transition to greener fuels, reached out to Saudi Arabia and the United Arab Emirates when those two OPEC members clashed over terms of a deal. U.S. gasoline prices have risen this summer, a consequence of higher oil prices.
The output hike will “please the White House, which has worried … about the impact of higher gasoline prices on U.S. consumers,” said Helima Croft, the chief commodities strategist at Canadian broker RBC.
Sunday’s oil deal calls for the Organization of the Petroleum Exporting Countries and a Russia-led group of big producers to raise production by 400,000 barrels a day each month through the end of 2022. The deal seeks to unwind all the cuts the two groups, collectively called OPEC+, agreed to make at the start of the pandemic.
The deal marks a turning point for the oil industry, which went into a tailspin in the early months of the pandemic. Economies around the world went into hibernation, and oil demand sank. At one point, oil markets were so chaotic that futures for U.S. benchmark crude briefly fell below zero. Oil-storage facilities were brimming full, and producers, trader and buyers were storing oil at sea because they had no need for it.
Big producers retrenched, cutting spending and jobs and seeking to sell assets to pare debt.
By contrast more recently, oil prices have been rallying most of the year on returning demand, particularly in rich countries. Oil companies have returned to profitability, and shares have risen sharply.