OPEC and its allies decided on Tuesday to maintain their policy of modestly boosting oil output next month as the rapidly spreading Omicron variant has so far not heavily hit demand.
The OPEC+ grouping, including top producers Saudi Arabia and Russia, has resisted US pressure for a wider opening of the taps in response to high energy prices fuelling a surge in inflation across the world.
The 13 members of the Organization of the Petroleum Exporting Countries (OPEC) and their 10 allies drastically slashed output in 2020 as the pandemic wreaked havoc with demand.
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Last year they decided to step it up again gradually as prices recovered, while reviewing the situation every month.
After a short videoconference meeting on Tuesday, the group said it had agreed to raise output by 400,000 barrels per day in February, the same increase as in previous months.
Since demand has barely been affected by Omicron, “we have to fulfil the obligations OPEC+ has set itself in relation to boosting production, Russian Deputy Prime Minister Alexander Novak, who is responsible for energy policy, told Rossiya 24 TV.
“The decision was widely expected, and oil prices barely moved on the news,” said Caroline Bain, chief commodities economist at Capital Economics.
The price of Brent, Europe’s benchmark oil contract, rose slightly to $79.60 on the news of OPEC+’s decision, buoyed by the organisation’s optimistic outlook for demand.
Hopes for normality
The club’s members had approved a similar hike at their December meeting despite the emergence of Omicron, which had caused prices to fall as markets fretted over the Covid variant’s potential impact on the global economy.
The December decision earned the thanks of the White House, nervous of the effect of rising prices at American petrol stations, but it did not prevent crude prices from recovering considerably from their previous slump.
OPEC analysts told the group on Monday that Omicron would have a moderate impact on demand and the rise in price is expected to continue in 2022.
While the new Covid 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.
OPEC+’s next meeting has been fixed for February 2, when members will take stock of the fast-moving developments in the pandemic.
On the eve of Tuesday’s meeting, OPEC named Kuwaiti oil executive Haitham al-Ghais to succeed Secretary-General Mohammad Barkindo on August 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).
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.
For Russia, Novak said the rise announced on Tuesday “means that from now until February we will have reversed around 85 percent of cuts in production” made in spring 2020, taking the country’s output 1.7 million bpd higher as compared with that period.
Another oil heavyweight, Iran, has seen its exports limited by US sanctions.
Talks to revive an international 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 landmark 2015 agreement back on track.
It was thrown into disarray in 2018 when the US withdrew from the accord.