Oil rose above $86 a barrel as Saudi Arabia said the OPEC+ alliance should continue its cautious approach to managing global crude supplies as the pandemic continues to threaten demand.
Brent rose 0.8%, while West Texas Intermediate rose to its highest level since 2014. Saudi Arabia's Energy Minister, Prince Abdulaziz bin Salman, said that producers should not take price increases for granted.
Oil has more than doubled in the last year, raising inflationary fears as the global economy recovers from the effects of the pandemic. While demand has increased, OPEC and its allies have been restrained in loosening the harsh production limits established in 2020 to save prices.
"Saudi statements support the view that OPEC+ will maintain its cautious approach. With demand looking better, this does indicate that the market will continue to tighten for the remainder of the year," said Warren Patterson, head of commodities strategy at ING Groep NV, “as a result, additional tightening raises the risk of further volatility.”
Crude's gains have been aided by a strong rally in natural gas, which has increased demand for oil products as a substitute. Prince Abdulaziz predicted that if the Northern Hemisphere's winter is colder than usual, and companies switch from gas to crude, consumption could rise by 500,000-600,000 bpd. He also warned that more barrels from OPEC+ would do little to lower gas prices in Europe and Asia, or gasoline prices in the US.
Goldman Sachs added to the optimism by predicting that switching from gas to oil may add 1 million bpd to global demand. "Even under typical winter temperatures, we estimate demand to remain near pre-Covid levels this winter," the bank stated.
Currently, OPEC+ is increasing daily output by 400,000 barrels per month while resisting calls to do more.