OPEC+ talks likely to consider pausing oil output hike as an option
An OPEC+ source says the Omicron COVID-19 variant and US intervention in the oil market have created a vague situation.
LONDON – OPEC+ ministers are likely to discuss pausing a planned oil output hike in January as one option during ministerial talks on Thursday, an OPEC+ source said, amid uncertainty about the impact of the pandemic on global crude demand.
“The Omicron COVID-19 variant and US intervention in the oil market have created a vague situation,” the source told Reuters, referring to a US plan to release oil from its reserves to reduce prices that hit three-year highs in October.
OPEC+ has an agreement in place to add 400,000 barrels per day (bpd) a month to global supplies as it gradually unwinds last year’s record supply cuts of about 10 million bpd, or 10% of global supplies, when demand had cratered.
The OPEC+ group of producers comprising the Organization of the Petroleum Exporting Countries (OPEC) and its allies has been at odds with US requests for increased oil output to support the global economy. Producers said they didn’t want to hamper a fragile energy industry recovery with a new supply glut.
Russia and Saudi Arabia, the biggest OPEC+ producers, said ahead of this week’s meetings that there was no need for a knee-jerk reaction to amend policy. Iraq said that OPEC+ was expected to extend existing output policy in the short term.
Since August the group has been adding an additional 400,000 barrels per day (bpd) of output to global supply, gradually winding down record cuts agreed in 2020 when demand crashed because of the pandemic.
On Wednesday OPEC+ experts said in a report seen by Reuters that the impact from Omicron was not yet clear, even though many countries were introducing lockdowns and other restrictions.
Even before concerns about Omicron emerged, OPEC+ had been weighing the effects of last week’s announcement by the United States and other major consumers to release emergency crude reserves to temper energy prices.
OPEC+ forecast a 3 million bpd surplus in the first quarter of 2022 after the release of reserves, up from 2.3 million bpd previously.
However, the report said that the impact of the release would be muted because some countries made it voluntary and the duration was uncertain.
U.S. President Joe Biden’s administration could adjust the timing of the release if prices drop substantially, US Deputy Energy Secretary David Turk told Reuters on Wednesday.
OPEC+ has been scaling back last year’s record output cuts of 10 million bpd, equivalent to about 10% of global supply. About 3.8 million bpd of cuts are still in place.
However, OPEC’s November oil output has again undershot the planned level, with some OPEC producers struggling to raise production capacity.