Oil producers around the world are sticking to their guns and keeping oil production capped even as oil prices continue to rise. Historically, the highly cyclical and predictable pattern of oil production would mean that oil producers would all be rushing to the pumps right now in order to capitalize on high oil prices before flooding the market with oil, depressing prices, instating caps, and starting the pattern all over again. Wash, rinse, repeat. But this time, the United States, OPEC, and even OPEC+ ally Russia are staying strong and resisting the urge to purge. After last year’s “Black April,” when oil prices fell by more than $50 per barrel in a single day and the West Texas Intermediate crude benchmark crashed past historic lows to bottom out at nearly $40 below zero, oil prices have seen a truly remarkable rebound, now trading at over $65 per barrel. And those prices could be further buoyed by continuously rebounding oil demand and overall economic recovery as vaccines roll out, summer arrives, and President Biden’s recently (barely) approved pandemic relief package gives consumers a little more leeway to more actively participate in the economy (not to mention take road trips that will drive gasoline demand and prices up even further) — a particularly important development for the 10 million U.S. residents who are still out of work.
But rising oil prices — and oil producers’ nearly unilateral decision to stand strong on production caps — could prove to be bad news for consumers. “Gas prices have risen about 35 cents a gallon on average over the last month, according to the AAA motor club, and could reach $4 a gallon in some states by summer,” the New York Times reports. “While overall inflation remains subdued, some economists are worried that prices, especially for fuel, could rise faster this year than they have in some time. That would hurt working-class families more because they tend to drive older, less efficient vehicles and spend a higher share of their income on fuel.” Of course, when it comes to oil prices, what holds true today could all seem like pointless and premature speculation by tomorrow. As tensions continue to percolate in the Middle East, unrest in the area could easily derail OPEC’s plans to keep their production steady and let their member countries’ economies recover.
What’s more, even though many of the world’s major players have shown resolve in keeping oil prices high, not all oil producing countries have taken the same tack. Some countries, such as Colombia and Guyana, are interested in pumping and selling as much oil as possible in the short term before flagging oil demand and the global clean energy transition take too much out of the petromarket. Kazakhstan and Iraq have also shown an uptick in exports. Even Iran and Venezuela, who have had all the teeth taken out of their respective oil industries by U.S. sanctions, are now managing to export more oil as global demand rekindles.
And then there’s the forever-fragile OPEC+ (sometime) alliance, which is already showing signs of strain as Russia chafes against production caps and pressures Saudi Arabia to loosen restrictions, in a dynamic all-too-reminiscent of the spat that led to bottomed-out prices in the first place. After the pandemic had already begun to spread and take a bite out of oil demand early last year, Saudi Arabia and Russia disagreed over how to address the issue, leading to an all-out oil price war. Even more than coronavirus, it was this geopolitical tension that forced oil producers to pay markets to take oil off their hands on April 20th, and it’s not out of the realm of possibility that such a global oil power spat could derail oil price recovery once again.