Saudi Arabia’s OPEC makes up for oil output policy as Omicron COVID variant shocks markets

Saudi Arabia’s OPEC makes up for oil output policy as Omicron COVID variant shocks markets

Summary:

 

  • On Thursday, non-OPEC partners including Russia will join the 13-member club.

 

  • There are few signs that the broader group, known as OPEC+, will abandon their existing output strategy, which calls for a monthly increase of 400,000 barrels per day.

Meet to discuss the impact of Omicron on energy demand

On Wednesday, a group of some of the world’s most influential oil producers will gather to discuss the potential impact of the new omicron COVID variation on energy demand.

The Organization of Petroleum Exporting Countries, chaired by Saudi Arabia, will meet by videoconference at 1 p.m. London time. On Thursday, non-OPEC partners including Russia will join the 13-member club.

There are few signs that the broader group, known as OPEC+, will abandon its existing output strategy, which calls for a monthly increase of 400,000 barrels per day.

Saudi Arabian and Iraqi OPEC ministers have both stated that the group’s output policy will likely be maintained. While Russia, a non-OPEC member, stated that no immediate action on the oil market is required.

Indeed, some OPEC+ producers are expected to struggle to achieve their quotas next month if the organization goes forward with an output increase.

Oil prices have been swinging wildly in recent days. According to reports, both Brent and WTI futures contracts are on course to have their largest monthly percentage drops since March last year. They reported lower percentages of 16 percent and 21%, respectively.

In a research note, Stephen Brennock, a senior analyst at PVM Oil Associates in London, stated, “So far, Russia and Saudi Arabia have put on a brave face.”

This week, OPEC will debate several concerns, including the influence of the omicron variation on future demand, according to Brennock. The United States-led release of strategic reserves from oil-importing countries, as well as Iran’s potential re-entry into the oil markets.

“All things considered, there is a lot of evidence to suggest that OPEC+ will not initially increase oil output to keep current prices around $70 per barrel,” Brennock said.

Concerns for oil price hikes

The two days of OPEC meetings follow a period of increased friction between the US and its Gulf allies, most notably Saudi Arabia, over rising oil prices.

On Nov. 23, US President Joe Biden announced a coordinated oil release by the US, India, China, Japan, South Korea, and the United Kingdom to assist cool the market.

The action was sparked by OPEC+’s refusal to heed US efforts to raise crude production to stifle rising fuel prices.

“In conclusion, OPEC+’s willingness to alter their plans is likely to expand. It will be crucial for oil price direction to see if big and compelling changes are disclosed this week.”

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