Oil Prices: OPEC Production Cuts, Middle Eastern Tensions, Stimulus

Feb 15, 2021

Biden’s COVID-19 Stimulus, OPEC Production Cuts and Middle Eastern Tensions Cause Oil Prices To Surge

On Monday 15th February 2021, oil prices soared. U.S. West Texas Intermediate (WTI) futures reached their highest levels since January 2020, currently trading at $60.95.  WTI crude futures gained 1.5%, to $60.33 a barrel (86 cents).

Brent crude increased by 66 cents, or 1.1%, at $63.09 a barrel, after climbing to a high of $63.44, the highest since January last year.

According to FxStreet, “The previous year’s high of $65.45 is well in the spotlight while the September 2019 peak surrounding $63.15 and December 2019 high of $62.25 also gain the market’s attention. It should, however, be noted that a downside break of $59.54 will need to break below the 10-day SMA level of $57.60 to recall the short-term WTI sellers.”

The rally was caused by the intensified tensions in the Middle East. Earlier this year, the Houthis attempted to capture oil-rich Marib. The Houthi militias launched missile and drone attacks on Saudi Arabia, which caused criticism from the international community.  The attack was met with a coalition, with over ten drones destroyed in just a week.

Another reason for the growing prices has been largely related to low supply, due to production cuts from the Organization of the Petroleum Exporting Countries (OPEC) as well as its allied producers.

Chief analyst at commodities broker Fujitomi Co, Kazuhiko Saito, commented, “An early spike in oil markets was triggered by the news”. He added, “But the rally was also driven by growing hopes that a U.S. stimulus and easing of lockdowns will boost the economy and fuel demand”.

COVID-19 also played a role in the rising oil prices. U.S. President Joe Biden turned to officials asking for help on his $1.9 trillion COVID-19 relief plan. It was the first major legislative achievement of Biden’s term.

Finally, one of the biggest drivers of the oil prices has been the expectations of recovery. With the UK announcing that they’ve successfully vaccinated 15 million people, there are hopes that the travel and hospitality sectors will begin getting back on track.  Naturally, these headlines caused a surge in both the oil and travel industries. Most of the governments are planning for an aggressive rebound this year, a deed that will undoubtedly benefit the oil industry.

Europe’s Stoxx 600 index was up over one percent, while the UK’s FTSE 100 grew more than two percent. Futures for the US’ S&P 500 were up 0.4 percent, although trading will be closed on Monday for President’s Day.