Oil Prices Chug Higher as OPEC Allows Feb Output Hike
Crude prices returned to the $80 per barrel mark on Tuesday as producer alliance OPEC+ allowed another output hike in February, vindicating bets by oil longs that Covid’s Omicron variant would not hurt demand for energy any more than other known variants of the virus.
OPEC+ — which groups the 13-member Saudi-led Organization of the Petroleum Exporting Countries with 10 other oil producers steered by Russia — greenlighted at a meeting on Tuesday a 400,000 barrel-per-day output hike for next month, similar to what it had done each month since August.
London-traded Brent, the global benchmark for oil, settled up $1.02, or 1.3%, at $80 per barrel. Brent peaked at $80.54 during the session, responding to the OPEC+ decision.
West Texas Intermediate, the benchmark for U.S. crude, settled up $1.04, or 1.4%, at $77.12 per barrel, after hitting an intraday high of $77.64.
Typically, crude prices will be under pressure in an environment of rising production.
But OPEC+’s action has produced the opposite effect as it demonstrates producers’ confidence in demand going ahead, analysts said.
The global oil producing alliance is unwinding record production cuts of 10 million bpd imposed since April 2020, when the height of the coronavirus pandemic sent WTI to a historic negative price of minus $40 a barrel.
While demand for oil has returned to pre-pandemic levels and prices hit 2014 highs of above $85 in October, OPEC+ has been tight-fisted in returning supply to the market, keeping at least 4.0 million bpd of regular daily production away.
This has upset the United States and other major oil consumers such as China and India, prompting them to gang up and release crude from their reserves to tamp down inflation from soaring energy prices.
OPEC+ has stuck to its ‘slowly-slowly’ approach in balancing the market after the combination of Omicron fears and crude releases from the so-called Strategic Petroleum Reserves of the consuming countries drove prices down by as much as 20% in November.
In a pre-meeting market assessment released on Monday, OPEC+ said the Omicron variant's effect on energy demand was expected to be "mild and short-lived."
"This is in addition to a steady economic outlook in both the advanced and emerging economies," a Joint Technical Committee report released by OPEC+ said.
RBC analysts added in a note that though Omicron cases continue to climb in key geographies, “the absence of widespread lockdown restrictions will likely keep near-term demand concerns in check".
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