OPEC and allied oil-producing countries decided Thursday to maintain the amount of oil they pump to the world even as the new omicron variant casts a spikey shadow of uncertainty over the global economic recovery from the coronavirus pandemic.
Officials from OPEC countries, led by Saudi Arabia, and their allies, led by Russia, voted to stick with a pre-omicron pattern of steady, modest monthly increases in oil releases — a pace that has frustrated the United States and other oil-consuming nations as gasoline prices rise.
The OPEC+ alliance approved an increase in production of 400,000 barrels per day for the month of January.
The fast-mutating variant led countries to impose travel restrictions when it emerged late last week. In a worst-case scenario, lockdowns triggered by omicron could cut oil demand by nearly 3 million barrels per day in early 2022, according to projections by Rystad Energy.
Positive news about drugs to treat the variant or the vaccines’ effectiveness against it could improve that outlook. But even with positive news, a decrease in oil demand is likely because “the distribution of these remedies may not actually reach all markets with extreme immediacy, which would still necessitate the lockdowns in much of the developing world,” said Louise Dickson, senior oil markets analyst for Rystad.
The price of a barrel of U.S. benchmark crude fell with news of the variant and then fell further as OPEC+ revealed it wasn’t going to curtail production. It was about $78 a barrel a week ago and was trading at about $67 a barrel Thursday. International benchmark Brent crude followed a similar path, falling from $79 a barrel a week ago to about $70 on Thursday.
The decision by OPEC+ to stay the course sends a signal that “the group does what it says and that they will continue their policy on their own terms,” Dickson said. “It also really signals that OPEC+ needs a bit more time to really dig into the numbers on the omicron variant.”
Saudi Energy Minister Abdulaziz bin Salman earlier this week played down any impact the little-understood variant would have on oil demand, telling the kingdom’s Asharq al-Awsat newspaper: “We are not worried.”
But OPEC ministers briefly postponed one of their meetings this week, hoping for more insight into whether the variant is likely to push the world back toward pandemic lockdowns or leave markets relatively unscathed.
Some analysts had predicted that the OPEC+ alliance — made up of OPEC members and allied non-members like Russia — would act cautiously Thursday, pending more clarity from medical experts on the new variant.
Before omicron’s appearance, the OPEC+ meeting had been shaping up as a potentially fraught moment in a growing dispute between oil-supplying nations and oil-consuming ones, as the global economy rebounds from the worst of the pandemic downturn and demand for oil surged.
Angering the U.S. and its allies, OPEC+ has stuck to a plan to open the petroleum taps bit by bit — even as oil prices surged to seven-year highs — until deep production cuts made during the depths of the pandemic are restored.
With rising gas prices putting him under political pressure at home, President Joe Biden last week responded to OPEC’s refusal to increase supplies more quickly by announcing the U.S. and other nations would release tens of millions of barrels of oil from their strategic reserves, boosting supplies and temporarily lowering prices. But gasoline prices in the U.S. barely moved.
And then, omicron’s emergence unsettled those dynamics.
White House press secretary Jen Psaki told reporters Tuesday that she knew of no plans to slow releases from strategic reserves, despite the advent of the variant.
Biden sent senior energy adviser Amos Hochstein to the United Arab Emirates and Saudi Arabia this week to soothe relations, address energy prices and talk about working together in transitioning to cleaner energy. Hochstein met with the Saudi energy minister Tuesday.
“We continue to convey that we are hopeful they will release supply to meet the demand out there on the marketplace,” Psaki said.
OPEC+ will meet again Jan. 4.