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    Oil prices rebound in anticipation of OPEC+ December meeting


Oil prices are rebounding today as attention turns to tomorrow’s OPEC+ meeting and the group’s potential reaction to the Omicron variant.

by: Louise Dickson, Rystad Energy

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Oil prices rebound in anticipation of OPEC+ December meeting

With sights set firmly on tomorrow’s OPEC+ meeting, oil markets are rising today on the expectation that the alliance of oil producers will either stay the course on their conservative supply increases or dig their heels in further in response to the threat posed by the Omicron variant.

Decisions made by the group invariably have a material impact on the global oil price, and while no public indication has been provided as to their decisions, it is likely that members will stay the course on their current modest supply increases or cut slightly. Any notable course corrections will likely wait until more news emerges regarding Omicron and vaccine efficacy.

December OPEC+ meetings are generally a milestone event during which the group sets the tone for next year, giving markets an insight into what the future might hold for the global supply of oil. The new Omicron variant and the coordinated SPR releases are both surprising and bearish market upsets that could impact members’ outlooks for 2022.

The recent slump in oil market prices was likely an over-reaction to the Omicron news, but OPEC+ is ready to wait for more data on the efficacy of current vaccines before making any significant changes to its output strategy. This could prove prudent if the variant scare turns out to be a false alarm, or it could be a bearish misstep if Omicron’s impact will be comparable to Delta’s or worse.

Weighing up the situation, it appears likely that OPEC+ will hold their 400,000 bpd increase or cut slightly. Maintaining the current course would have a mildly bearish effect on oil prices, potentially swiping $2-5 per barrel from the Brent crude price. Russia and Saudi Arabia currently account for around half of the planned 400,000 bpd monthly increases, so any tweaks to outputs would disproportionally affect cargoes of predominantly Urals and Arab Light crude grades.

If OPEC+ wants to provide market relief, they could lower monthly additions or perhaps announce an extension of supply cuts beyond December 2022; either action would be neutral or mildly bullish for the market.

Given the threat to oil demand posed by Omicron and the bearish promise of SPR releases, even if OPEC+ reduces its supply for January by a significant amount, a strong price reaction is unlikely.

However, if more than a 1 million bpd cut is announced, similar to the “surprise Saudi” cut that kept an additional 1 million bpd off the market in January and February 2021, a strong price bump could materialize. 

Looking ahead to 2022, the price of Brent crude is expected to average $65 per barrel over the year, as the market remains oversupplied and under threat from demand-side risks including Covid-19 lockdowns, negative consumer elasticity due to sustained high prices and negative GDP impact. Brief price spikes above $80 or even $100 cannot be ruled out due to rising inflation costs of labor and equipment and the enduring gas crunch, but such theoretical periods of volatility will be short-lived. 

The statements, opinions and data contained in the content published in Global Gas Perspectives are solely those of the individual authors and contributors and not of the publisher and the editor(s) of Natural Gas World.