OPEC, allies brace for another modest increase in oil output

OPEC and its allies are expected to maintain their practice of modest oil output increases on Tuesday, as the fast-spreading Omicron variant has so far not hit demand hard.

The OPEC+ grouping, which includes top producers Saudi Arabia and Russia, has resisted pressure to open the taps more as high energy prices fuel a rise in inflation around the world.

The 13 members of the Organization of the Petroleum Exporting Countries (OPEC) and their 10 allies sharply cut production in 2020 as the pandemic played havoc with demand.

Last year they decided to step it up again gradually as prices recovered while reviewing the situation every month.

The video conference will begin on Tuesday following technical discussions.

Analysts expect the group to increase production by 400,000 barrels per day in February, as they have done in recent months.

They approved another hike at the December meeting, despite the Omicron release sending prices lower as markets worried about its potential impact on the global economy.

“Since the last OPEC+ meeting (in early December), oil prices have recovered considerably, suggesting that market participants also appear to be less concerned about the Omicron option influencing oil demand,” he told AFP Giovanni Staunovo, UBS energy strategist.

The price of Brent, Europe’s benchmark oil contract, hit $79.30 on Tuesday – 15% higher than before the group’s December 2 meeting.

OPEC analysts told the group on Monday that Omicron would have a moderate impact on demand.

As the new variant of Covid spreads like wildfire around the world, it appears to be much less serious than initially feared, raising hopes that the pandemic may be overcome and life will return to something more normal.

“Sense of Stability”
In remarks on Monday, OPEC Secretary General Mohammed Barkindo stressed the need to “remain highly nimble and adaptable to the ever-changing situation.”

He said the group’s “flexible approach helped provide an additional sense of stability, assurance and continuity to the market and investors”.

OPEC on Monday named Kuwaiti oil executive Haitham al-Ghais to succeed Barkindo once his second term as secretary-general expires in July.

Al-Ghais, who served as Kuwait’s OPEC governor from 2017 to June 2021, will take up his three-year post on August 1.

He is currently the Deputy General Manager of Kuwait Petroleum Corporation (KPC) and has decades of experience in the industry.

Iran exports

While OPEC+ countries have gradually increased production again since last year, analysts note that some countries, such as Nigeria and Angola, are struggling to increase production.

“Important here is that Russia did not increase production in December, which could be a sign that it is getting closer to capacity,” said SEB chief commodity analyst Bjarne Schieldrop.

Another heavyweight, Iran, has seen its exports curtailed by US sanctions.

Talks are underway in Vienna to relaunch a deal that curtailed Iran’s nuclear activities in return for sanctions relief.

They have continued since last year, but negotiators are pushing to wrap up talks to restore the landmark 2015 deal.

It was thrown into disarray in 2018 when the US withdrew from the agreement.