Oil prices shoot to over $90 US a barrel for first time since 2014

The North American benchmark price for oil surged Thursday to over $90 US a barrel — its highest level since 2014.

The March crude oil contract for West Texas Intermediate closed at $90.27 US per barrel, up $2.01 per barrel, bolstered by geopolitical tensions and supply concerns.

Economist Rory Johnston said the turnaround in prices from early in the pandemic is "amazing."

Oil prices crashed into negative territory shortly after the onset of COVID-19, he noted, and now he believes they could hit $100 US a barrel later this year.

"I think part of the reason that you're seeing prices at $90 right now is because you saw negative $40 a barrel, or whatever it hit, back in 2020," said Johnston, founder of the Commodity Context newsletter and managing director at Toronto-based investment firm Price Street. 

"You're seeing a lot of hesitation from global producers to put that cash flow that they are currently getting into the ground to produce more oil. And boy, oh boy, do they have a tremendous amount of cash flow coming in the door."

Other factors analysts are attributing to higher prices recently is the decision of OPEC and its allies to stick to its planned output increase despite pressure from top consumers to raise production more quickly.

Rising Russia-Ukraine tensions are also viewed as a factor that could upend energy flows.

Johnston said he is also watching to see how much United States oil production ramps back up at higher prices, something that could later weigh on crude prices. 

"I have not yet seen evidence that the drilling rates [in the U.S.] are picking up to the level they're going to need to to supply the oil that a lot of people are expecting them to produce," Johnston said.

"But we've counted U.S. shale down and out before and we've been wrong."

Jeremy McCrea, managing director of energy research at Raymond James in Calgary, said the rise in prices to over $90 US a barrel is "pretty important" psychologically for the sector.

However, he said even with these higher prices, there has not been a great increase in spending by the industry.

"A lot of oil and gas companies are holding the line in terms of planned increases," McCrea said.

Vastly improved cash flows in the sector have had oil and gas companies rewarding shareholders with increased dividends and share buybacks.

There are also calls for the sector to put that money into efforts to reduce emissions or clean up old well sites.

McCrea said the higher oil prices are good news for the Alberta government coffers.

"When the budget gets released here at the end of the month, I think it's going to be astonishingly strong and a lot higher than I think anybody would have expected in terms of the royalty revenues that are coming into the province."