The black liquid is on the rise at the start of the London session today, extending gains after the Organization of the Petroleum Exporting Countries and allies (OPEC+) decided to leave its supply addition plans unchanged at its latest meeting.
The cartel stated that they would review supply additions ahead of its next scheduled meeting if the Omicron variant dents demand. However, even with the bullish price action seen, the black liquid is still on course for a sixth consecutive week of decline.
The global benchmark, the Brent crude futures is up 1.72%, currently trading $70.88 a barrel, making its way back above the $70 trading range, after climbing 1.2% in the previous session. The United States’ benchmark, the West Texas Intermediate (WTI) crude futures is up 1.70%, currently trading $67.63 a barrel after gaining 1.4% the previous day.
What you should know
After its meeting yesterday, the cartel surprised the market with its decision as it agreed to stick to its plan of adding 400,000 barrels per day (bpd) supply in January 2022.
However, the cartel left the door open to changing policy swiftly, explaining that they could change this policy if the new omicron COVID-19 variant hits fuel demand and was prepared to meet before the next meeting scheduled for Jan. 4, 2022, if needed.
What they are saying
ANZ Research analysts said in a note that the OPEC+’s surprise decision, “boosted prices with traders reluctant to bet against the group eventually pausing its production increases.”
Wood Mackenzie analyst Ann-Louise Hittle said it made sense for OPEC+ to stick with their policy for now, given it was still unclear how mild or severe Omicron turns out to be compared with previous variants. She stated, “The group’s members are in regular contact and are monitoring the market situation closely. As a result, they can react swiftly when we start to get a better sense of the scale of the impact the Omicron variant of COVID-19 could have on the global economy and demand.”
JPMorgan analysts said the market fall implied an “excessive” hit to demand, while global mobility data, excluding China, showed that mobility is continuing to recover, averaging at 93% of 2019 levels last week. They stated, “So far we see no signs of demand weakening on (a) global scale.”
For the past one week, the oil market has been bearish as news of the emergence of Omicron and speculation that it could spark new lockdowns, dent fuel demand and spur OPEC+ to put its output increases on hold. The spread of the new variant coupled with the OPEC+ supply decision, will largely be the main catalyst for price appreciation and depreciation in the coming weeks.