The Organization of the Petroleum Exporting Countries (OPEC) and allied oil-producing countries agreed Tuesday to maintain their policy of modestly boosting oil output next month amid hope that travel and demand for fuel will hold up despite the rapid spread of the omicron variant of COVID-19.
The 23-member OPEC+ alliance led by Saudi Arabia and non-member Russia said it would add 400,000 barrels per day in February, sticking with a road map to slowly restore cuts in output made during the depths of the pandemic.
Oil prices plunged, and stocks slid in late November after the first reports about the ultra-contagious omicron variant. But prices have since recovered and markets calmed down. Analysts say vehicle traffic and aviation activity suggest that omicron, while it is dominating headlines and raising concerns about hospital capacity, may wind up not drastically reducing demand for fuel.
The production increases are gradually restoring deep reductions made in 2020, when demand for motor and aviation fuel plummeted because of pandemic lockdowns and travel restrictions. At times, OPEC+ hasn’t moved fast enough in raising production for U.S. President Joe Biden, who has urged producing countries to open the taps wider to combat surging gas prices and aid the economic recovery.
The U.S. and other oil-consuming countries on Nov. 23 announced a coordinated release of oil from strategic reserves in an effort to contain rising energy prices that have helped fuel inflation and raised politically sensitive gasoline prices for U.S. drivers. Yet Biden’s move is seen as having only a muted effect on prices.
A recent decline in U.S. gasoline prices – which are significantly influenced by the price of crude – has steadied at a national average of $3.28 per gallon, down from about $3.40 in mid-November.
Last year they decided to step it up again gradually as prices recovered, while reviewing the situation every month.
The price of Brent, Europe's benchmark oil contract, hit $79.76 at 1:25 p.m. GMT on Tuesday – 15% higher than before the group's Dec. 2 meeting.
While the new COVID-19 variant is spreading like wildfire around the world, it appears to be far less severe than initially feared, raising hopes that the pandemic could be overcome and life return to a little more normality.
'Sense of stability'
In remarks on Monday, OPEC Secretary General Mohammed Barkindo emphasized the need to "remain highly nimble and adaptable to the constantly changing situation."
He said the group's "flexible approach has helped provide an added sense of stability, reassurance and continuity to the market and investors."
OPEC on Monday named Kuwaiti oil executive Haitham al-Ghais to succeed Barkindo on Aug. 1.
Al-Ghais, who was Kuwait's OPEC governor from 2017 to June 2021, is a deputy managing director of the Kuwait Petroleum Corporation (KPC).
Iran exports
While OPEC+ countries have been gradually increasing output again since last year, analysts note some countries, such as Nigeria and Angola, have been struggling to lift production.
"Important here is that Russia did not lift production in December which could be a sign that they are getting closer to their capacity," SEB chief commodities analyst Bjarne Schieldrop said.
Another heavyweight, Iran, has seen its exports limited by U.S. sanctions.
Talks to revive a deal, which curbed Iran's nuclear activities in exchange for sanctions relief, are underway in Vienna.
They have dragged on since last year but negotiators are pushing to conclude the talks to get the 2015 landmark agreement back on track.
It was thrown into disarray in 2018 when the U.S. withdrew from the accord.