OPINION: It took a drone attack on a Saudi Arabian oil installation to nudge the price of Brent crude above $70 per barrel early this week.

But a more long-lasting impact on rising oil prices also came last week, when Opec and its allies in the Opec+ alliance decided not to increase output.


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The value of Brent blend had already recovered to the mid-$60s even before Saudi-led Opec made its move amid a flurry of positive signs.

The biggest was increasing optimism surrounded the fast rollout of Covid-19 vaccines, raising hopes of lockdowns ending and a return to a semblance of global economic normality.

At the same time, global oil stocks have rapidly been unwound, bringing demand and supply more closely into balance.

Opec gave small exemptions to allies Russia and Kazakhstan, but the 150,000 extra barrels per day overall starting from April was far less than the full 1.5 million bpd many expected to be agreed at last week's key ministerial meeting.

Further rises in prices following the online Opec meeting once again demonstrated the ongoing importance of the cartel.

This is a far cry from the month-long oil price war a year ago when the Saudis deliberately flooded the market with crude following a row with Russia.

The combination of too much crude and plunging demand due to the pandemic briefly pushed the price of West Texas Intermediate crude well below zero in April.

Since then, prices have gradually been in recovery mode, allowing oil and service companies to gain some relief.

Missile attack: Saudi civil defence soldiers at the aftermath of an attack in Jazan, following a military projectile launched by Yemen's rebel Houthis on 2 March Photo: AP/SCANPIX

There has been a steady increase in drilling rigs coming back into service, especially in the hard-hit US shale patch.

The question now is how long Opec discipline will hold and keep production levels down — a strategy that hurts the internal economies of many of its members for whom oil provides the bulk of its exports and foreign exchange.

Tensions inside Opec are higher than ever, with the United Arab Emirates threatening to leave last year, angry about continued output cuts.

Geopolitics could also play a role driving prices higher.

The drone attack by Houthi rebels on a storage tank at Ras Tanura last weekend and a ballistic missile landing in Dharan did little damage, according to the Saudis.

But the move spooked the markets. This is just the latest in a series of attacks in this part of the world, which has raised the risk profile of oil.

In January 2020, a US airstrike in Baghdad killed a top Iranian commander, sending prices up 4%.

There had been a previous drone and missile attack by the Houthi rebels on Saudi in September 2019, which also sent oil prices higher.

Last week’s move by Opec+ increased the oil price forecasts of analysts at Goldman Sachs by $5 per barrel.

The investment bank is expecting Brent crude to average $75 during the second quarter of 2021, rising to $80 for the next three months.

But JP Morgan has warned that Covid-19 may have changed travelling patterns structurally, leading many to work at home, avoiding road and air travel.

Yet, the latter bank has also predicted oil prices could still spike to $100 when the pandemic completely subsides.

The Financial Times last month quoted Christyan Malek, head of oil and gas at JP Morgan, as saying on a conference call: “We’re going to be short of oil before we don't need it in the years to come.”

The focus for the oil industry over the past year has been on costs, cuts and carbon. The immediate future looks to be about comebacks.

(This is an Upstream opinion article.)