Opec and allies reach agreement to continue boosting oil production

Saudi Arabia and allies in the Opec+ alliance have agreed to continue increasing monthly crude production, delivering a win for consumer governments including the US who have called on the group to help push prices down. lower.

Oil prices initially fell following the announcement, which surprised a market that had assumed that a group of major producers would hold back supply due to concerns the spread of the Omicron coronavirus variant would affect demand. global oil demand. The international benchmark Brent oil price fell 1% on Thursday to around $68 a barrel, before bouncing back above $69.

The Opec+ group, which includes Opec members and other producers such as Russia, said it would increase supply in January by 400,000 bpd as previously planned. However, in an unusual move, they said the meeting would remain “in session”, suggesting that Saudi Arabia, Russia and other major producers could quickly step in to raise prices if necessary.

Opec+ “will continue to monitor the market closely and make immediate adjustments if required,” it said.

Opec+’s decision comes after weeks of pressure from the White House, which has called on the group to add more supply to cool off prices that have surged over the past year and raised concerns about inflation across the board. wide in the US. President Joe Biden announced the largest oil release ever since America’s Emergency Stockpile last month in an attempt to reduce prices with little immediate impact.

Then last weekend, concerns about the possible impact of the Omicron variant on the global economy prompted oil price drop, fueling speculation that Opec+ will stop increasing monthly production altogether.

Analysts say that Saudi Arabia’s decision not to intervene to stem the fall shows geopolitical concerns as a factor.

“There are broader issues going on at this Opec+ meeting and not just Omicron,” said Amrita Sen, research director at consulting firm Energy Aspects.

According to her, Opec’s own forecasts suggest that oil inventories will increase significantly, so “the absence of a production halt suggests a political angle.”

People familiar with recent diplomatic discussions said the improvement in relations between Biden’s White House and the Saudi leadership could be part of the kingdom’s willingness to continue adding production supplement.

“During the market’s surprise, [the] Opec + decide. . . Bob McNally, head of Rapidan Energy Group and former White House adviser to George W Bush, said it was hardly a policy error.

The decision “reflects the novelty and great uncertainties created by [strategic petroleum reserve] release and Omicron, the need to replenish inventory early next year and the desire to de-escalate with President Biden,” McNally said.

West Texas Intermediate, the US oil benchmark, also fell on the news before recovering on Thursday. It recently traded at just under $66 a barrel, down 16% since the middle of last week.

Opec+ has increased its total oil production each month since August as it gradually replaces the massive supply it cut when the pandemic depressed oil prices last year.

Until the discovery of the Omicron variant last week, the team had been under increasing pressure to accelerate that process amid warnings of a growing deficit between supply and demand.

Diamantino Azevedo, Angola’s Minister of Petroleum and Mineral Resources, said: “The sudden emergence of a new and more dangerous variant could precede new lockdowns in parts of Europe aimed at The aim is to prevent an increase in serious infections, especially in unvaccinated people.” opening session of the Opec meeting on Wednesday.

“In these uncertain times, it is imperative that [Opec and its allies] remains cautious in our approach and ready to take the initiative when market conditions warrant it. ”

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