A group of oil producers led by Saudi Arabia and Russia has agreed to continue to scale back the large cuts they made at the start of the pandemic, as an economic revival around the world stimulates demand for crude and other commodities.

Oil prices have skyrocketed on the group’s bullish forecast for a rapid increase in oil demand later this year, reaching prices not seen in years. Brent crude, the international benchmark, rose more than 2%, topping $ 70 a barrel at one point, and on track for its highest close since May 2019. West Texas Intermediate futures at at one point rose nearly 3%, over $ 68 a barrel. The American gauge on Tuesday crossed its highest level since October 2018.

Along with the oil price milestones comes similar events recently achieved by a range of other commodities, from tin to copper to lumber. They have also all skyrocketed, amid pent-up demand that is struggling to keep up with producers.

Such a large group of commodities has not grown simultaneously for so long since the economic recovery following the financial crisis in 2009.

“It’s good old-fashioned reflation trade,” said Tom Price, head of commodities at investment bank Liberum, describing expectations of an explosion in economic activity that boosts assets.

OPEC +, as the oil producer group calls itself, on Tuesday agreed to a previously scheduled production increase of about 450,000 barrels per day, starting next month. Saudi Arabia, meanwhile, has agreed to continue to ease the separate one-million-barrels-per-day unilateral cuts it implemented earlier this year.

In April, the group agreed to increase production by more than two million barrels per day by the end of July, bringing cumulative additions over the past year to some four million barrels per day. That’s a big chunk of the 9.7 million barrels a day that the group agreed to cut in early 2020 when the coronavirus began to shut down economies, undermining global demand for crude and pushing prices down.

Now, with infection rates generally under control in much of Asia and China – the world’s largest consumer of oil – and vaccine campaigns in the United States and Europe advancing, the Saudi Arabia-led Organization of Petroleum Exporting Countries and a Russian-led group of non-OPEC producers are betting markets are ready for more oil again. An OPEC + group technical committee announced Monday that demand for oil will increase by six million barrels per day in the second half of the year, according to OPEC delegates. As a result, global oil stocks will fall below their five-year average for the 2015-2019 period by the end of July, signaling the end of the pandemic glut, they predicted.

Demand for oil and other commodities reflected the huge swings in global economic activity during the pandemic. After falling sharply as large parts of the global economy were put on hold in the second quarter of last year, demand for oil has rebounded as many wealthy economies have thawed in recent months .

Strong demand for a range of products that have helped households and businesses adjust to the stresses of living with the Covid-19 virus had pushed global industrial production above its pre-pandemic peak to its end. from last year. Since then, growth has left factories around the world hungry for energy and raw materials.

Demand is expected to increase further this year as the global economy is expected to experience one of its fastest expansions in decades. The Organization for Economic Co-operation and Development said on Monday it expects world production to rise 5.8%, which would be the biggest expansion since 1973.

The growing demand for raw materials to fuel this expansion could act as a disruption if supply cannot keep up. Rising oil prices have contributed to a pickup in inflation around the world. Eurozone figures released on Tuesday showed consumer prices were 2% higher in May than a year earlier, the fastest rise since late 2018. But much of the rise was due to energy prices, which were 13.1% higher than a year earlier.

In the United States, the Commerce Department’s measure of inflation showed that consumer prices rose 0.6% in April from the previous month and 3.6% from a year earlier . Base prices, which exclude energy and food, rose 0.7% on the month and 3.1% on the year.

As a major importer of raw materials and the first major economy to recover from Covid-19, China has had to absorb higher costs for a range of raw materials from crude oil to copper and iron ore since the year last. This has created new challenges for the Chinese economy.

Smaller manufacturers are particularly affected, which have suffered from declining profit margins in recent months due to high raw material prices. In response to these growing cost pressures, more and more Chinese factories have recently raised product prices. Some others have temporarily halted their operations and refused further orders. The country’s ex-factory prices jumped 6.8% year-on-year in April, the highest in 3.5 years, on the back of soaring commodity prices.

Central bankers said they expected inflationary pressures to ease towards the end of the year, with commodity producers and factories responding to rising prices by increasing production. OPEC’s decision on Tuesday supported this view.

“We have rising oil and commodity prices, and we are also having strange effects due to changes in the consumption pattern,” said Laurence Boone, chief economist of the OECD. “But that should wear off as the supply response kicks in.”

Yet rising prices are already making life more difficult for manufacturers. Companies as diverse as General Motors Co.

and Vestas Wind Systems A / S, a Danish manufacturer of wind turbines, have complained about the rise in the price of steel.

“This is a big deal for automakers,” said Andy Palmer, who has worked in the industry for 40 years, most notably as the former managing director of British automaker Aston Martin. “I’ve seen times when commodity prices have been volatile, but it’s rare to see almost all commodities go up so quickly,” he said.

While the global oil tap can be activated relatively quickly – OPEC can tap into its prodigious untapped capacity – it is much more difficult for miners and farmers to suddenly increase production of coal, copper or cotton. Price gains are causing mining companies, for example, to consider their future plans.

Commodity trading giant Glencore PLC said in February it plans to restart production at the world’s largest cobalt mine in the Democratic Republic of the Congo. Glencore chose to close the Mutanda mine, which also produces significant amounts of copper, in August 2019, as prices for both metals fell. In recent months, persistent supply bottlenecks caused by the pandemic and surging demand from recovering Asian economies have caused prices to skyrocket. Copper prices hit their highest level last month. Cobalt prices have increased by more than 50% this year.

Write to Benoit Faucon at [email protected] and Alistair MacDonald at [email protected]

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