Oil extends gains above $80 after OPEC+ output hike

LONDON: Global oil prices extended gains on Wednesday, rising towards $81 a barrel after OPEC+ producers stuck to an agreed output target rise for February and investors assessed the impact of a spike in Covid-19 cases caused by the Omicron variant, Reuters reported

Brent crude futures were up 65 cents, or 0.81 percent, to $80.65 a barrel by 1317 GMT, while U.S. West Texas Intermediate (WTI) crude futures rose 56 cents, or 0.73 percent, to $77.55.

While the new Covid variant continues to spread rapidly around the world, forcing governments to maintain containment measures, its apparently milder symptoms have also allowed traders to focus more on future economic policies and plans to rein in surging prices.

"Overall, risk appetite remains positive," said ThinkMarkets analyst Fawad Razaqzada. "The biggest driver behind this is relief that Omicron is not as deadly as Delta, which is fuelling expectations that travel restrictions and lockdowns will be lifted soon."

OPEC+ producers, which include members of the Organization of the Petroleum Exporting Countries along with Russia and others, on Tuesday agreed to add another 400,000 barrels per day of supply in February, as they have done each month since August.

The United States has urged the group to pump more crude to help the global economic recovery from the pandemic and cool prices as they trade near $80 a barrel. But the group has said the market did not require extra oil.

OPEC+ is unwinding record production cuts of 10 million bpd, which were imposed in 2020, as demand and prices recover from their pandemic-induced slump. Current plans would see OPEC+ again raise the target by 400,000 bpd for February, leaving about 3 million bpd in cuts to unwind by September, in line with an agreement last July.

The United States reported nearly 1 million new coronavirus infections on Monday, the highest daily tally of any country in the world and nearly double the previous U.S. peak set a week earlier.

While OPEC+ raised its output target, it will likely struggle to reach it, as members including Nigeria, Angola and Libya face difficulties ramping up production, Barclays analysts said in a note.

"OPEC+ has adopted the path of least (political) resistance, as it continues to stay the course on increasing output targets, but actual incremental supplies are likely to be much smaller, similar to the demand effect from Omicron."

The bank expects Brent oil prices to average $80 a barrel in 2022. Data showing a sharp rise in U.S. inventories last week also weighed on prices.

U.S. gasoline stockpiles rose by 7.1 million barrels in the week to December 31, the American Petroleum Institute (API) reported late on Tuesday. Distillate stockpiles climbed by 4.4 million barrels in the week.