OPEC Plus Continues Oil Production Plans

Officials from OPEC, Russia, and other oil-producing countries had a lot to worry about when they met via videoconference on Thursday. The biggest concerns were whether the emergence of a new strain of the coronavirus would torpedo the burgeoning global economic recovery and the activity of key Asian customers, including the US and China, on high oil prices.

Finally, the group known as OPEC Plus decided to take the easy route and stick to the previously agreed program of gradually adding oil to the market. As in the last months, they decided to increase production by 400,000 barrels per day in January.

But to show worried oil markets that they are ready to change this plan if necessary, the producers said in a press release that their meeting will “stay in session” so that producers can monitor the market and make “immediate adjustments if necessary”.

Prices fell sharply as it became clear that OPEC Plus will boost production. But they rebounded quickly, and later in the day, futures were up 1.7 percent for international benchmark Brent crude at around $70.10 a barrel.

While many analysts predicted that the group could halt the monthly increases it agreed on in July or even cut production, others said Thursday’s decision made sense.

In recent months, strong oil demand and producers’ restrictions on production have driven inventories to low levels.

Analysts pointed out that future demand is probably on hold. “Middle East OPEC members will see good demand for their crude in January,” analysts from FGE, a consulting firm, said in a report Thursday as Asian economies strengthen.

Given the unknowns on what impact the Omicron variant will have, manufacturers seem to have decided to wait and find out rather than making a move that could unwittingly send a negative signal to the markets.

Moreover, according to the schedule that came into effect during the pandemic, OPEC Plus always has a meeting where changes can be made. The next scheduled meeting is on January 4th.

Continuing the planned increase will likely ease friction with the Biden administration, which regulated the release of oil stockpiles from the US Strategic Petroleum Reserve, along with smaller moves from other major oil consumers last month.