Oil Prices Rise as OPEC+ Ratifies Production Increase

Oil Prices Rise as OPEC+ Ratifies Production Increase

Oil prices rise on Tuesday as the Organisation of Petroleum Exporting Countries and allies (OPEC+) approve a monthly quota increase of 400,000-barrels per day, starting from next month as supply from Libya falters due to a closed pipeline and the shutdown of the country’s largest oil field.

Earlier in the morning trading session, West Texas Intermediate crude for February delivery was last seen up US$0.85 to US$76.93 per barrel, while March Brent crude. The global benchmark was up US$0.85 to US$79.83 per barrel.

OPEC+ meets today to approve a planned production hike, continuing its policy of adding supply monthly to return volumes cut early in the pandemic to the market.

However, the increase comes as the Covid-19 omicron variant continues to surge, with the United States reporting more than one million new infections on Monday for the first time.

The group last month kept its meeting open in order to reduce production should the coronavirus force lower demand, but it may not feel the need to take a similar measure on Tuesday.

The supply hike comes even as the group expects the global market to be oversupplied by 1.4-million barrels per day in the current quarter, 25% lower than its December estimate.

While OPEC+ adds to supply, output from Libya, an OPEC member, is expected to be cut by 700,000-bpd as a pipeline is repaired while a militia group forced the closure of the country’s largest oil field.

OPEC Plus to Increase Oil Production in February

OPEC+ today resolved to push ahead with plans to boost oil production by 400,000 barrels a day in February as the omicron variant of COVID-19 is projected to have a limited impact on global demand.

The decision was made “in view of current oil market fundamentals and the consensus on its outlook,” the group said on its website Tuesday.

West Texas Intermediate crude futures rose 1.7% to $77.39 a barrel while Brent grew 1.6% to $80.23 a barrel in afternoon trading.

Oil prices have surged over the past year as demand for the key commodity improved as the global economy reopened from COVID-19 restrictions. But a recent rise in cases, driven by the milder but more virulent omicron type, has raised some concerns about the recovery as some regions enacted new on businesses and gatherings.

OPEC’s Joint Technical Committee expects the variant’s impact to be “mild and short-lived,” said Commerzbank Analyst Barbara Lambrecht, citing news agency reports.

“Everything seems to be running smoothly for OPEC+ at present” but omicron could still lead to tighter mobility restrictions and supply “could prove surprisingly positive” as several nations will release oil from their reserves, Lambrecht said in a note released Tuesday ahead of the group’s decision.

In late November, President Joe Biden said the US Department of Energy will release 50 million barrels of oil from the Strategic Petroleum Reserve to reduce prices and balance the demand and supply.

Leading energy consumer nations including China, India, Japan South Korea, and the UK will also join the plan to release reserves.

Commodity prices are expected to rise in 2022 if the demand and supply also increase but are unlikely to see another strong performance since their 2020 low, John LaForge, head of real asset strategy at Wells Fargo wrote on Monday.

Demand rebound will depend on the global economic recovery, easing mobility restrictions and normalizing pent-up activity levels, while supplies could be impacted by pandemic-related issues and renewable energy shifts, he said.

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