Opec+ reaches agreement on January output increase

Opec and its allies will stay the course and bring 400,000 barrels per day of crude to the market in January despite the release of Strategic Petroleum Reserves by the US and other major oil-consuming nations and concerns that Omicron variant of the coronavirus could weigh on oil demand growth.

The Opec+ group of oil producers, led by Saudi Arabia and Russia, said members agreed to go ahead with the agreed “production adjustment plan and the monthly production adjustment mechanism” and bring the scheduled supply to the market, according to a statement at the end of deliberations on Thursday.

The group will meet again on January 4 to assess the market situation when there is more clarity on the Omicron variant and its impact on oil demand growth.

The communique by the group said its meeting “shall remain in session pending further developments of the pandemic” and it will “continue to monitor the market closely and make immediate adjustments if required”.

“The meeting reaffirmed the continued commitment of the participating countries in the Declaration of Cooperation to ensure a stable and balanced oil market,” the producer group said.

Opec+, which enforced historic production cuts last year to counter the pandemic-induced fall in energy demand, has played a key role in stabilising oil markets so far by gradually increasing supply to the market. The oil exporters’ group had agreed to increase output by 400,000 bpd in January. It is bringing a total supply of 2 million bpd back to markets by the end of the year.

Market analysts had widely expected Opec+ to pause production increase in January. Brent, the global benchmark for two thirds of the world’s oil, gave up early gains and fell 1.66 per cent to $67.73 per barrel after the announcement. West Texas Intermediate, the gauge which tracks US crude, dropped 1.72 per cent to $64.44 per barrel at 6.56pm UAE time on Thursday.

The Opec+ ministerial meeting has taken place amid increased volatility in crude prices, stoked by co-ordinated SPR release and the outbreak of the more infectious Omicron Covid-19 variant. Concerns that current Covid-19 vaccines may not be effective against the newest strain have rung alarm bells for demand growth.

Crude prices have dropped from about $86 per barrel high achieved in October to current level in the past few weeks.

The full extent of the Omicron impact on the global economy and its subsequent implications for oil demand have yet to be assessed fully, but it has forced a number of countries to impose travel restrictions to contain its spread.

India, one of the top consumers of oil, has postponed the resumption of international flights from December 15. The EU, US, UK and Canada have all imposed travel restrictions on visitors from countries in southern Africa.

“Given the large-scale uncertainties at the current juncture, we await further developments on Omicron’s developments and additional mobility restrictions that may be imposed before refreshing our supply and demand models as well as our oil price forecasts,” Japanese lender MUFG said.

In the past, “variants of concern” have arisen without significant impacts, and so far the Omicron outbreak has occurred in countries with low vaccination rates.