Oil prices jumped to the highest level in at least three years after Opec and its allies agreed to stick with existing oil production plans, resisting calls to help damp soaring global energy prices to protect the economic recovery.
Brent crude oil, the international benchmark, rose 3 per cent on Monday to trade as high as $81.48 a barrel, a three-year peak. US benchmark, West Texas Intermediate, rallied 1.5 per cent to $77.26 a barrel, the highest level since 2014.
The oil producer group, which has co-operated with Russia and other countries under the Opec+ banner since 2016, agreed this summer to add 400,000 barrels a day of production each month until the end of 2022.
After a meeting on Monday, it decided to stick with that plan, swatting away calls to boost production further and depress prices, despite a growing energy crunch as other energy commodities such as natural gas soar to record levels.
People close to the discussions said Saudi Arabia — the group’s de facto leader — had been keen to continue with the existing plan, arguing that oil prices had not risen substantially in recent months, even while other energy commodities had surged.
The group also wanted to appear consistent in its decision making, giving long-term guidance to the oil market rather than making knee-jerk production increases it may need to reverse if the pandemic led to renewed restrictions that hit demand this winter.
“The group want to signal stability to the market and a clear path for production,” said Amrita Sen at Energy Aspects, a consultancy.
Opec+ agreed record-breaking production cuts last year when oil demand collapsed at the peak of lockdowns across the western world. But, last week, investment Goldman Sachs warned global crude stockpiles were shrinking at a record pace.
An energy crunch caused by tight supplies of natural gas and coal, which has hit Europe but also increasingly Asia, including big oil-consuming economies such as China and India, makes the decision even more difficult for the group.
Record-breaking gas prices are adding to oil demand. Amin Nasser, the head of Saudi Arabia’s state oil company Saudi Aramco, told a conference on Monday he thought gas-to-oil switching had boosted demand by as much as 500,000 b/d.
Bjarne Schieldrop, chief commodities analyst at SEB in Norway, said before the meeting that failing to raise production further would be seen as “reckless”.
“The result [will be] that oil prices will rise yet higher in a situation where energy consumers across the world already are feeling a high level of pain from record high coal and natural gas prices.”