Omicron variant hasn’t fazed OPEC+ yet
Group to stay with plan despite possible drop in global demand
OPEC and allied oilproducing countries decided Thursday to maintain the amount of oil they pump to the world even as the new Omicron variant casts a shadow of uncertainty over the global economic recovery from the coronavirus pandemic.
Officials from OPEC countries, led by Saudi Arabia, and their allies, led by Russia, voted to stick with a pre-Omicron pattern of steady, modest monthly increases in oil releases — a pace that has frustrated the United States and other oilconsuming nations as gasoline prices rise.
The OPEC+ alliance approved an increase in production of 400,000 barrels per day for the month of January.
The fast-mutating variant led countries to impose travel restrictions when it emerged late last week. In a worst-case scenario, lockdowns triggered by Omicron could cut oil demand by nearly three million barrels per day in early 2022, according to projections by Rystad Energy.
Positive news about drugs to treat the variant or the vaccines’ effectiveness against it could improve that outlook. But even with positive news, a decrease in oil demand is likely because “the distribution of these remedies may not actually reach all markets with extreme immediacy, which would still necessitate the lockdowns in much of the developing world,” said Louise Dickson, senior oil markets analyst for Rystad.
The price of a barrel of U.S. benchmark crude fell with news of the variant and then fell further as OPEC+ revealed it wasn’t going to curtail production. It was about $78 (U.S.) a barrel a week ago and was trading at about $66 a barrel Thursday. International benchmark Brent crude followed a similar path, falling from $79 a barrel a week ago to about $69 on Thursday.
The decision by OPEC+ to stay the course sends a signal that “the group does what it says and that they will continue their policy on their own terms,” Dickson said. “It also really signals that OPEC+ needs a bit more time to really dig into the numbers on the omicron variant.”
Saudi Energy Minister Abdulaziz bin Salman earlier this week played down any impact the little-understood variant would have on oil demand, telling the kingdom’s Asharq al-Awsat newspaper: “We are not worried.”
But OPEC ministers briefly postponed one of their meetings this week, hoping for more insight into whether the variant is likely to push the world back toward pandemic lockdowns or leave markets relatively unscathed.
White House press secretary Jen Psaki said Thursday that there are no plans to slow releases from strategic reserves, despite the advent of the variant and OPEC’s decision.
“We welcome the decision today to continue the 400,000 barrelsper-day increase,” Psaki said. “We believe this should help facilitate the global economic recovery.”
OPEC+ will meet again Jan. 4.
The price of a barrel of oil fell with news of the Omicron variant and then fell further as OPEC+ revealed it wasn’t going to curtail production