Oil is continuing its steady recovery into 2021, thanks to the new signal that the world’s largest oil producer will not open the throttle and flood the market.
US crude oil futures recently broke through $50 a barrel for the first time since February last year. This is the latest milestone in the rebound driven by increased travel and economic activity following the relaxation of coronavirus restrictions. Production cuts by large suppliers from Saudi Arabia to American companies are accelerating, giving traders confidence that demand will exceed supply.
Since Saudi Arabia said last week that it would unilaterally cut production, oil prices have hit new highs. This is part of the agreement reached between OPEC and Russia and other allies. Supply curbs the belief that even if the pandemic intensifies and harms demand, cartels will maintain flexibility in output.
American shale oil producers also said that they are not eager to increase supply, but plan to repay debts and return cash to shareholders. Investors and industry executives say that these commitments together should help the energy industry recover and highlight the consensus among producers that the economic losses caused by the pandemic are far from over. This means that the supplier does not need to spend additional output.
Richard Dealy, president and chief operating officer of Texas Oil Company Pioneer Natural Resources Co., said: “I don̵