OPEC+ to increase oil output in January despite Omicron jitters

December 03, 2021

London: Major oil producers decided Thursday to raise output levels in January, despite the Omicron coronavirus variant raising fresh questions over demand.The OPEC+ alliance led by Saudi Arabia and...

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London: Major oil producers decided Thursday to raise output levels in January, despite the Omicron coronavirus variant raising fresh questions over demand.

The OPEC+ alliance led by Saudi Arabia and Russia has so far resisted US-led pressure to significantly boost output to rein in surging energy prices.

But the emergence of the variant further complicated the equation, as countries have imposed new travel curbs and mull other measures that could dampen demand and hurt oil prices.

The 13 members of the Vienna-based Organization of Petroleum Exporting Countries (OPEC) and their 10 allies met for a little over an hour on Thursday afternoon via video conference.

The group decided to stick with its modest increase in output by 400,000 barrels per day every month, as they have been doing since May.

Oil prices had been rising strongly ahead of the meeting of OPEC and its allies amid expectations they would pause their modest monthly crude production increases given the added uncertainty Omicron brings to global demand.

However, prices plunged as the oil producers decided to go ahead with a planned increase of 400,000 barrels per day in January.

Brent fell more than $1 after the deal was reported, trading below $70 a barrel, well off October's three-year highs above $86. Prices in November had already registered their biggest monthly decline since the start of the pandemic.

"Demand concerns were already on the rise and the last thing crude oil bulls were expecting to hear was another rollover of the current policy from the OPEC+ group," said analyst Fawad Razaqzada at Think Markets.

"Yet contrary to some expectations for only a moderate hike or no hike at all for January, that´s exactly what happened," he said.

Razaqzada said the production hike will completely remove the threat of supply shortages at a time when demand is expected to fall.

The OPEC+ meeting comes a week after the United States and to a lesser extent China, India and Japan decided to dip into their strategic reserves to help bring down crude prices, after a price surge that has undermined economic recovery.

But the detection of the new variant last week caused crude prices to plunge around 15 percent, a first since the massive drops of April 2020 when the pandemic started to hit hard.

In the hours before the decision was announced prices for the two benchmark

contracts, WTI and Brent, had been largely stable on $66 and $69 per barrel respectively.

But the fell sharply as the meeting got underway and stood down roughly 2 percent as the announcement of the production increase was announced

At a technical meeting on Wednesday, OPEC Secretary General Mohammed Barkindo had "highlighted... that steady progress has been made on the global economic recovery" but also "underscored the need to remain attentive to the prevailing uncertainties and shifting conditions, including those related to the new Covid-19 variant Omicron," OPEC said in a statement.

Washington had called on the cartel to further open the taps.

International Energy Agency executive director Fatih Birol said Tuesday he hoped OPEC+ would continue its current policy of increasing production.

The group´s spare capacity is some 10 times higher than the 400,000 barrels per day that it has been adding to the markets every month.

Last year OPEC+ made record output cuts of 10 million bpd, equivalent to about 10% of global supply. That has since been scaled back to about 3.8 million bpd.

However, OPEC+ has regularly failed to meet its output targets, producing about 700,000 bpd less than planned in both September and October, the International Energy Agency (IEA) says.

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