OPEC, allies stick to modest output boost despite Omicron

NEW YORK (AP) – OPEC and allied oil-producing countries decided on Thursday to stick to their plans to boost oil production even as the new omicron variant cast a shadow of uncertainty over the global economic recovery from the coronavirus pandemic.

Officials from OPEC countries, led by Saudi Arabia, and their allies, led by Russia, voted to deliver steady, modest monthly increases in oil releases – a pace that frustrated the United States (US) and other oil-consuming nations as gasoline prices have risen.

The OPEC+ alliance approved an increase in production of 400,000 barrels per day for the month of January.

The fast-mutating variant led countries to impose travel restrictions when it emerged late last week. In a worst-case scenario, lockdowns triggered by Omicron could cut oil demand by nearly three million barrels per day in early 2022, according to projections by Rystad Energy.

Positive news about drugs to treat the variant or the vaccines’ effectiveness against it could improve that outlook.

But even with positive news, a decrease in oil demand is likely because “the distribution of these remedies may not actually reach all markets with extreme immediacy, which would still necessitate the lockdowns in much of the developing world”, said Rystad senior oil markets analyst Louise Dickson.

Gasoline prices are displayed at a station in the US. PHOTO: AP

The price of a barrel of US benchmark crude fell with news of the variant.

It was about USD78 a barrel a week ago and was trading at about USD67 a barrel on Thursday. International benchmark Brent crude followed a similar path, falling from USD79 a barrel a week ago to about USD70 on Thursday.

The decision by OPEC+ to stay the course sends a signal that “the group does what it said and that they will continue their policy on their own terms”, Dickson said.

“It also really signals that OPEC+ needs a bit more time to really dig into the numbers on the Omicron variant.”

Saudi Energy Minister Abdulaziz bin Salman earlier this week played down any impact the little-understood variant would have on oil demand, telling the kingdom’s Asharq al-Awsat newspaper: “We are not worried.”

But OPEC ministers briefly postponed one of their meetings this week, hoping for more insight into whether the variant is likely to push the world back toward pandemic lockdowns or leave markets relatively unscathed.

Some analysts had predicted that the OPEC+ alliance would act cautiously on Thursday, pending more clarity from medical experts on the new variant.