OPEC+ agreed yesterday to stick to its planned increase in oil output for February because it expects the Omicron coronavirus variant to have a short-lived impact on global energy demand.
The group of producers comprising the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia has raised its output target each month since August by 400,000 barrels per day (bpd).
Reuters reports that the United States has urged the group to pump more crude to help the global economic recovery from the pandemic and cool prices as they trade near $80 a barrel. But the group has said the market did not require extra oil.
OPEC+ is unwinding record production cuts of 10 million bpd, which were imposed in 2020, as demand and prices recover from their pandemic-induced slump.
Brent crude rose 50% last year and has rallied so far in 2022, trading 2% up above $80 on Tuesday.
Current plans would see OPEC+ again raise the target by 400,000 bpd for February, leaving about 3 million bpd in cuts to unwind by September, in line with an agreement last July.
In a technical report seen by Reuters on Sunday, OPEC+ played down the impact on demand of the Omicron variant, saying it would be “mild and short-lived” and was upbeat about economic prospects.
“This is in addition to a steady economic outlook in both the advanced and emerging economies,” the Joint Technical Committee report said.
Rystad Energy’s analyst, Bjornar Tonhaugen, said OPEC+ has grown confident in part because real-time transportation data globally suggests Omicron has not yet had any significant impact on oil demand.
“Ongoing (oil production) outages in Libya, struggling production recovery in Nigeria, and reduced expectations for Russian production capacity add bullish weight to the scale from the supply side,” he added.
While OPEC+ has increased its output target each month, actual production has lagged as some members struggle with capacity constraints.
OPEC+ producers missed their targets by 730,000 bpd in October and by 650,000 bpd in November, the International Energy Agency said last month.
OPEC+ will hold its next meeting on February 2.
A poor regulatory framework, sabotage and vandalism of oil facilities are deterring needed spending in Nigeria.
New York Times also reports that A few producers in the 23-member OPEC Plus group, including Saudi Arabia and Iraq, are increasing output handily, but others are lagging. A range of issues, including political strife and underinvestment in drilling, are holding them back.
The slow ramp up in production could lead to tension with the Biden administration, which wants the producers to pump more oil in an effort to lower gasoline prices in the United States.
Gas prices, nationally at $3.28 a gallon, are now about one-third higher than they were a year ago, according to the Energy Information Administration, a government agency, and contributing to rising inflation.
In its December Monthly Oil Report, the International Energy Agency (IEA), estimated that OPEC+ fell short of its November target by 650,000 barrels a day, substantially more than the 400,000 bpd the group had planned to increase each month.
Even Russia, the group’s second-largest exporter after Saudi Arabia, appears to have hit a wall at about 9.9 million bpd, about 600,000 less than it pumped in April 2020 before the big cuts and well short of Russia’s 10.2 million bpd allocation for next month Saudi Arabia has the same quota.
For Russia to increase substantially from here will require improved tax policies and the development of new fields, analysts say.
Also, Nigeria, Africa’s largest producer, in November pumped 360,000bpd below its quota — almost enough on its own to wipe out the agreed 400,000bpd monthly increase for the overall group.
“A poor regulatory framework, sabotage and vandalism of oil facilities” are deterring needed spending in Nigeria, the IEA said in its report.
Angola, another African country, is also pumping well under its quota, while Libyan production has recently fallen off rapidly because of political turmoil.