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Oil hits two-year high as producers keep supply restricted

For the first time since May 2019, Brent crude oil reached $71.99 per barrel

The price of oil has touched a new two-year high, as demand is rising while economies emerge from lockdown restrictions and producers keep supply restricted.

For the first time since May 2019, Brent crude oil reached $71.99 per barrel, having steadied overnight at a two-year high.

Oil is now at its pre-pandemic level, and then some, after it crashed in the early months of 2020.

US crude oil is not far behind, touching $69.4 per barrel, the highest level since October 2018

The recent run comes following a meeting between OPEC+ countries where it was agreed production cuts would be eased, as the possibility of sanctions on Iran being lifted becomes more realistic.

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Although it has stuck with its policy of slowly easing oil production cuts, OPEC+ retained a positive outlook over demand levels.

Prince Abdulaziz bin Salman, Saudi Arabia’s energy minister, is predicting a recovery in demand in both the US and China in the near future, as vaccine roll-outs continue to support the oil market.

Francisco Blanch, global commodities and derivatives strategist at Bank of America, told CNBC that he is bullish about the longer-term oil price as OPEC retains a position of power.

“We think in the next three years we could see $100 barrels again, and we stand by that. That would be a 2022, 2023 story,” Blanch said. “Part of it is the fact we have OPEC kind of holding all the cards, and the market is not particularly price responsive on the supply side and there is a lot of pent-up demand … We also have a lot of inflation everywhere. Oil has been lagging the rise in prices across the economy.”

A number of traders, as reported by the Financial Times, have suggested that the vaccine roll-out, along with stimulus packages, have pushed demand for oil. The resultant deficit is what caused the price of crude oil to surge by over 30% since the end of last year.

“Unless widespread cheating develops or a renewed uptick in global coronavirus cases evolves, OPEC’s current recipe for success would appear to represent a viable plan,” said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois.

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