The OPEC oil cartel as well as its allied producing countries will boost crude oil production by 2.1 million barrels per day in June. This decision is in keeping with the cartel's earlier plan to adjust to increasing energy demand, post-pandemic, by boosting production.
As the pandemic stalled the world's economy, oil-producing countries attempted to maintain the price of oil by drastically cutting production as demand fell. Now they face the difficult decision of just how quickly to ramp back up production.
The decision to maintain the 2.1 million figure was made at an online meeting between energy ministers that was held on the first day of June.
Prince Abdulaziz bin Salman, the Saudi Energy Minister who was on the call, said that the gradual increase in production was "the right decision" but that there remains "clouds on the horizon," regarding the recovery of demand.
The group's choice to continue to raise production comes despite surges of COVID-19 cases in countries like India, a major energy consumer. Some are concerned that these surges will depress global demand and bring down prices.
Still, there may be reasons to feel optimistic. First, oil prices have recovered from their pandemic slump and are, in fact, now closing at multi-year highs. Since the start of 2021, prices have risen by 30%. Second, the U.S., Europe, and Asia are expected to see an explosion in demand as vaccinated citizens begin to travel more, requiring more fuel.
In the U.S., increases in the portion of the population that has received the vaccine came just in time for Memorial Day weekend, the beginning of the "driving season" in this country.
After OPEC's decision was made known on Tuesday, June 1, after an initial jump of 4% the benchmark U.S. crude rose by 2% to $67.72. Brent crude in Europe saw modest gains of 2.7%, rising to $71.17, but closed at $70.25.
Wednesday also saw a small boost in oil prices, with the benchmark U.S. crude rising to $67.88 per barrel.
However, there are also other reasons for concern. Talks over the nuclear program in Iran could result in an influx of Iranian oil onto the market. The talks are expected to conclude by June 18, at which point Iran will be allowed to raise their oil supply from the rates they were at in May by 1.05 million barrels per day until December.
According to Bin Salman, the possibility of an increase in Iranian oil was not discussed at the June 1 meeting, which was reportedly less than 30 minutes long.
Increases in oil prices don't just affect oil producers. In the U.S., crude makes up roughly half the price of a gallon of gas, meaning motorists in the U.S. have been facing higher costs at the pump. According to the Associated Press, holiday travelers saw the highest prices for gas since 2014.
