OPEC and its allies agreed to proceed with their next oil-production hike, while signaling they could revisit the decision at any moment as the risk to demand from the omicron variant of Covid-19 becomes clearer.
The group will add 400,000 barrels a day of crude to global markets in January, as previously scheduled. However, it also left the door open to adjusting the plan at short notice if the market changes, an unusual step that underscores the uncertain outlook due to a resurgent pandemic and a U.S.-led release of emergency stockpiles.
“The OPEC+ communique announcing that the meeting remains ongoing is very important — it signals they’re poised to pause or cut if conditions warrant,” said Bob McNally, president of consultant Rapidan Energy Group and a former White House official. “For now, the fog of uncertainty is too dense and they’ll wait for it to dissipate.”
With crude already in a bear market due in large part to the emergence of the new coronavirus strain, traders had been widely expecting the Organization of Petroleum Exporting Countries and its allies to defer the supply hike. Oil fell 2.5% to $63.96 a barrel as of 9:37 a.m. in New York.
Yet a pause would also have carried some political risk. Despite the recent sell-off, Saudi Arabia faces pressure from the U.S. and other key consumers to ensure supplies remain plentiful enough to stave off an inflationary price spike. Ignoring such considerations could strain the kingdom’s already-fraught relations with Washington.
Prior to Thursday’s meeting, ministers indicated that they were concerned about the impact of omicron on oil demand, but were struggling to figure out exactly how serious the new strain would become. Giving themselves the ability to immediately change course is one way of managing this uncertainty.
“The meeting shall remain in session pending further developments of the pandemic and continue to monitor the market closely and make immediate adjustments if required,” according to the communique published on the OPEC website.–Bloomberg