Oil prices climbed back to their pre-pandemic levels on Monday, after hitting an all-time low last year, surging to $60 (£44) a barrel.
It comes amid optimism for a vaccine-led economic recovery and a commitment by major global producers to restrain the supply of crude.
Prices have been boosted thanks to rising demand across the world, particularly in Asia — China is the world’s second-largest oil user. Experts added that a weaker dollar was also providing a boost to commodities.
Brent crude futures (BZ=F) have soared around 60% since November while West Texas Intermediate (WTI), the US benchmark, jumped above $55 a barrel last week for the first time in a year.
Brent is currently 0.81% higher at $60.04 while WTI futures (CL=F) have risen 1.2% at $57.55 per barrel.
The coronavirus pandemic saw oil consumption plummet in 2020. Oil demand in China collapsed by 20% in February after the country locked down for the coronavirus pandemic.
In March, a price war between Saudi Arabia and Russia, over how to respond to the demand drop, sent shockwaves across the oil markets and added to black gold’s struggles.
As a result, in April for the first time in history US futures traded below zero, as the world was so awash in crude. WTI collapsed to minus $40.32 per barrel at the time, meaning that producers paid buyers to take the oil off their hands
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However, last week, the Organisation of Petroleum Exporting Countries and their allies (OPEC+) announced “high compliance” among member states with agreements to limit supply to force up prices.
A committee of member countries’ representatives held a virtual meeting on Wednesday, and gave no signals of a looming let-up in the cartel’s supply cuts.
An OPEC statement said countries had held down production by a total of 2.1 billion barrels since April 2020, when the market suffered an historic collapse and futures prices even briefly turned negative.
“The committee welcomed the positive performance of participating countries,” it said. “Participants pledged to achieve full conformity and make up for previous compensation short-falls, and stressed the importance of accelerating market rebalancing without delay.”
A document seen by Reuters last week also showed that OPEC expects output cuts to keep the market in deficit throughout 2021, even though the group reduced its demand forecast.
Michael Hewson of CMC Markets said: “It is hard to escape the elephant in the room which is that these higher prices could well act as a brake on consumer demand, prompting demand destruction, and snuffing out any nascent recovery.
“Of course, with these higher prices, the consensus and discipline amongst OPEC+ members could well start to fracture as some countries break ranks to ramp up production in order to take advantage of this move higher.”
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