Oil at $73 a barrel points to more pain for Irish consumers and businesses

US oil rigs in operation rose by six to 365, the highest since April 2020. File photo

Oil prices have hit their highest levels in more than two years supported by the global economic recovery and the prospect of fuel demand growth as vaccination campaigns in developed countries accelerate.  

The price of the global crude benchmark Brent increased to $73.22 a barrel, its highest since May 2019.

Resurgent crude oil prices have had a dramatic effect on wholesale and consumer prices across the world - reflected in US and Irish prices surging in recent weeks. 

It takes about two weeks for increases or falls in crude prices to affect the price paid by Irish motorists at  petrol pumps.

However, previous crude oil price increases this spring are already showing through in a wide range of goods and services as manufacturers pay more for their raw materials. 

Irish household energy bills have already risen steeply in recent months. 

Irish consumer prices surged in May by an annual 1.7% — the fastest pace for over two years — as electricity and heating and other utility bills surged on the back of global oil price hikes, CSO published last week showed. 

Making matters worse, are global supply chains for all types of goods that are straining to keep up the surge in global demand as the world comes out of the Covid-driven recession.

And the traditional factors of supply are also in play in the crude oil market.       

Motor vehicle traffic is returning to pre-pandemic levels in North America and much of Europe, and more planes are in the air as anti-coronavirus lockdowns and other restrictions are being eased, driving three weeks of increases for the oil benchmarks.

The mood was also buoyed by the G7 summit where the world's wealthiest western countries sought to project an image of cooperation on key issues such as recovery from the Covid pandemic and the donation of 1 billion vaccine doses to poor nations.

"If the inoculation of the global population accelerates further, that could mean an even faster return of the demand that is still missing to meet pre-Covid levels," said Rystad Energy analyst Louise Dickson.

The International Energy Agency (IEA) said last week that it expected global demand to return to pre-pandemic levels at the end of 2022, more quickly than previously anticipated.

IEA urged the Organisation of the Petroleum Exporting Countries (Opec) and allies, known as Opec+, to increase output to meet the rising demand.

The Opec+ group has been restraining production to support prices after the pandemic wiped out demand in 2020, maintaining strong compliance with agreed targets in May.

US oil rigs in operation rose by six to 365, the highest since April 2020, energy services company Baker Hughes Co said in its weekly report.

It was the biggest weekly increase of oil rigs in a month, as drilling companies sought to benefit from rising demand. 

Additional reporting Reuters