Oil Prices Surge as Demand Outstrips Supply
Oil Producers Keep Output Constant Amid Surging Prices
Brent Crude, the international oil benchmark, briefly surpassed $80 per barrel Tuesday before reversing course and dipping into negative territory.
Oil prices have been surging in recent months as demand for crude surpasses supply. Oil demand tumbled last spring as COVID-19 spread across the world. In response, OPEC and its oil-producing allies removed close to 10 million barrels per day from the market. But as demand recovers, some oil producers are still reluctant to increase production,sending crude prices surging.
US Oil Benchmark Rises
It was not only international crude prices that jumped Tuesday. West Texas Intermediate (WTI) crude futures, the US oil benchmark, reached a two-month high before reversing its course.
Oil prices are also increasing in response to the recent spike in natural gas prices. As natural gas becomes more expensive, some utilities companies may switch to oil from gas. As it stands, natural gas inventories are much lower than normal in the US and Europe. As a result, prices are forecast to remain high in the coming months and could spike more if the winter is particularly bad.
US Oil Producers Slow to Open Spigots
OPEC and its oil-producing partners are not the only ones reluctant to increase output. US oil producers are not expected to rapidly boost production after spending the past several years deploying capital discipline to their businesses. Rather, the US shale oil companies are expected to continue to upgrade drilling equipment and complete new wells. Free cash flow from higher oil prices will also go to return cash to shareholders and to expand holdings through mergers and acquisitions.
Rising oil prices and a lack of interest to boost supply is good news for investors in US oil-producing companies, but bad news for almost everybody else.
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