Opec to pump more oil but keeps door open for cuts owing to Omicron

Oil cartel will put stop to planned increase if new Covid variant leads to further travel and trade restrictions

First published on Thu 2 Dec 2021 12.07 EST

The Opec cartel and its allies have agreed to pump more barrels oil from January, but left the door open to putting the brakes on should the Omicron variant lead to further restrictions on travel and trade.

The global price of crude fell briefly to $66, its lowest level since mid-August, after ministers from some the world’s biggest oil producing countries agreed to go ahead with a plan to increase production by 400,000 barrels a day in the new year.

However, prices swung back up after the Opec+ agreed the meeting would not formally close. The unusual move was so the cartel could “continue to monitor the market closely”, pending any new developments, and make “immediate adjustments” rather than wait for the next meeting on 4 January.

Thedecision to leave its oil production policy unchanged for now may suggest that Opec+ is banking on new travel restrictions being short-lived if existing vaccines prove effective against the Omicron variant, or if its symptoms are milder than earlier variants of the virus.

But if the situation worsens, Opec would be able to bring in immediate cuts to its planned production in order to shore up prices on the global oil market.

In recent weeks, oil prices have fallen from three year highs of $86 a barrel, and were down more than $10 a barrel since last Thursday, when news of Omicron first rattled markets.

The decision to continue increasing production is likely to come as a relief to major economies, which fear rising prices will fuel a prolonged period of inflation. It is also likely to bring some respite to motorists in the US and across Europe who have faced steadily increasing petrol prices at the same time as higher home energy bills.

Some traders had hoped that the Opec+ cartel would abandon its policy to gradually increase production after the discovery of the Omicron variant led to new travel restrictions, which could dent the global demand for transport fuels.

Louise Dickson, a senior oil markets analyst at Rystad Energy: “The Omicron variant has sobered up markets during the last few days, halting the oil demand recovery enthusiasm and sending traders scrambling to limit risk in their portfolios.”

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