A lot can happen in one year. Just take a look at the average price for a barrel of Brent crude in 2020 — $41.96. Yesterday, that same barrel jumped above $80, the highest in over three years. This surge should not come as a surprise. The price of oil has been rising for a while now, mainly due to the reopening of the world economy after the Covid-19 lockdowns (hallelujah).
Reduced supply is another factor. Recent Hurricane Ida and Storm Nicholas destroyed more than 17 million barrels of oil (that’s more than 90% of Mexico’s Gulf production!). Other supply-side factors such as the global gas shortfall and China’s anti-pollution drive have played their fair share too.
The global oil rally is excellent news for Saudi Arabia, which can bank on the supply shortage. The country has a production capacity of 12 billion barrels a day, though they currently only pump an average of 9 billion. Other Arab countries with significant oil reserves, like Iraq will, may also come out as winners.
why it matters
Despite a global push for green energy, the recent increase in oil prices demonstrates that the demand for liquid gold is still very relevant. Today, OPEC announced that demand would continue accelerating in the coming years, crushing the hopes of those who were ready for the oil industry to put up the shutters. The MENA region is smiling.