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The price of oil is back to pre-pandemic levels

REUTERS/Mike Blake/File Photo/File Photo
The price of gasoline is at its highest point in a year, but may fall again soon.
  • Tim McDonnell
By Tim McDonnell

Climate reporter

Published

The last time the price of oil was this high, the US was about to confirm its first Covid-19 case.

The US benchmark for crude oil, West Texas Intermediate (WTI), reached nearly $58 per barrel on Feb. 8, the first time it has hit pre-pandemic levels since the collapse of global oil demand sent prices plummeting to record lows in last April and May of 2020. During the second half of 2020, WTI prices had stagnated around $40, below what most US producers needed to turn a profit. But it began to climb in December as travel increased and global production cuts instituted earlier in the pandemic finally brought supply more in line with demand.

The increase is a strategic victory for Saudi Arabia, which pressured other members of the Organization of Petroleum Exporting Countries (OPEC) and non-members like Russia to agree to cut production in the interest of stabilizing prices in 2020. On Jan. 10, OPEC agreed to another round of cuts for February and March.

The price rally has already helped US oil producers, a week after Chevron and Exxon both posted dismal new earnings reports. The tally of active drilling rigs in the US is now at its highest since May, but is still less than half of where it was this time a year ago. Unfortunately for US drivers, gasoline prices are also at their highest levels in a year, and will likely continue to rise in the coming weeks as they catch up to the oil price bump.

But oil prices are unlikely to stay high for long, said Ed Hirs, an energy economist at the University of Houston. Russia, Iraq, and some other major producers are forging ahead with drilling in spite of Saudi Arabia, as the global economic recovery from the pandemic remains shaky. As prices rise, more OPEC members may begin to chafe at maintaining production cuts while their US competitors turn the spigot back on.

“Producers all enjoy higher oil prices, but I don’t think they’re sustainable at this level,” he said. “OPEC has never really been great at finely managing the market.”

Most importantly, demand isn’t yet back: According to energy market analysis firm Wood Mackenzie, global oil demand won’t return to pre-pandemic levels this year, if ever. It predicts the pace of recovery will be closely tied to the pace of Covid-19 vaccination, which remains slow in the US. “Many technical indicators are flashing red,” said Bjornar Tonhaugen, head of oil markets for Rystad Energy, in a statement. “So a price correction soon would not be unsurprising.”

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