OPEC+ has decided to raise its oil output for February as it expects the impacts of omicron to be mild and short-lived.
The group of producers agreed to increase output by 400,00 barrels per day from next month. A move that might come as no surprise given recent US pressure to increase supply to ease surging energy prices.
Previously, the energy alliance issued a record 9.7m barrels per day cut during April 2020 to buoy the energy market amid the height of the pandemic.
OPEC+ has been gradually restoring output in 400,000 barrels per day monthly increments, with the view to regain pre-pandemic levels by late 2022.
“Crude prices are rising again as OPEC+ grows more confident that the global crude demand outlook will only take a limited hit from the omicron variant. The plan to gradually return production can move forward as OPEC+ anticipates a tighter market in the first quarter,” said OANDA senior market analyst Ed Moya.
“When you factor in that many countries are struggling to hit their quotas, even Russia, the oil market should expect this lack of capacity will keep prices heading higher throughout the year,” Moya added.
US energy stocks rallied on the news with names like Occidental Petroleum, Royal Dutch Shell and Exxon Mobil rallying more than 3%.
ASX energy stocks struggled to follow through as the broader market experienced a short-lived positive open before sliding into negative territory.
Perceptions have shifted from a tight oil market in the short-term to risks of an oversupplied market.
OPEC Secretariat, the International Energy Agency (IEA) and other major agencies have all projected global oil supply exceeding global oil demand in the first quarter of 2022.
The oversupply narrative, combined with the rapid spread of omicron and thousands of flight cancellations over the Christmas period has led to speculation that OPEC+ might need to consider pausing or reducing its output hikes to prevent oil prices from going backwards.
However, it appears that OPEC+ is optimistic on current market conditions, with the belief that underlying demand fundamentals will prevail.
According to S&P Global Platts, internal OPEC+ analysis indicated that the expected Q1 surplus would be around 1.4m barrels per day, much narrower than what the Group had forecast back in December.
OPEC is due to meet on 2 February to discuss March production levels.
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