WTI Surpasses $75 for the First Time in 3 Years (Comprehensive)

Consumer Sentiment Revives Ahead of Summer Vacation Season
Expectations for Travel Demand Recovery Increase

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kim Suhwan] West Texas Intermediate (WTI) crude oil prices surpassed $75 per barrel for the first time in three years since 2018. This is attributed to the rebound in oil demand as consumer sentiment revives ahead of the summer vacation season amid signs of economic reopening following the COVID-19 pandemic.

On the 1st (local time), WTI prices closed at $75.23 per barrel on the New York Mercantile Exchange (NYMEX), up 2.40% from the previous session. This marked the highest level since October 2018.

Additionally, Brent crude oil prices on the London ICE Futures Exchange were trading at $75.84 per barrel as of 7 a.m. Korean time on the 2nd, up 1.63% from the previous day.

The rise in oil prices is interpreted as reflecting expectations that travel demand, which had been depressed due to COVID-19, will recover significantly, boosting demand for jet fuel and gasoline.

Earlier, WTI prices started this year at $48.5 per barrel and have since risen by more than 50%.

Furthermore, expectations that major oil-producing countries will pursue easing production cuts rather than expanding output have further fueled the rise in oil prices.

The production increase following the easing of cuts announced by OPEC+ is set at 400,000 barrels per day from August to December this year.

However, with an explosive rebound in crude oil demand expected ahead of the summer vacation season, this scale of production increase is considered far too small to resolve supply shortages.

Jeff Currie, a commodity market analyst at Goldman Sachs, emphasized, "The scale of OPEC's production increase is insufficient to calm oil prices," adding, "As of last month, there was a daily shortfall of 2.3 million barrels of crude oil."

As supply fails to keep pace with demand, there are forecasts that oil prices could surge to $100 per barrel. Bank of America (BoA) predicted in an early last month report that "oil prices could surpass $100 per barrel by next year."

Meanwhile, the OPEC+ meeting scheduled for the 1st was extended by one day due to disagreements among member countries. Bloomberg reported that the United Arab Emirates (UAE) opposed the plan to increase production by 400,000 barrels per day on the 1st, delaying the final decision on oil supply policies by a day.

According to major foreign media, the UAE, which is advocating for an increase in production, is pushing OPEC+ to raise the baseline production volume used as the basis for oil production cuts. Raising the baseline would effectively ease the production cuts further.

However, concerns have also been raised about potential oversupply of crude oil in the medium to long term. The spread of the Delta variant could lead to renewed lockdown measures, which might again suppress oil demand.

The Joint Technical Committee (JTC), OPEC+'s market monitoring body, stated on the 29th of last month that "there is a risk of oversupply in 2022," citing the spread of the Delta variant and the polarization in economic recovery speeds among countries as main factors.

Additionally, ongoing negotiations between the United States and Iran to restore the Iran nuclear deal are expected to be a variable. If the talks conclude early, Iran's increased crude oil production and exports could significantly boost oil supply.

This content was produced with the assistance of AI translation services.