OPEC (Organization of the Petroleum Exporting Countries, OPEC) and its oil-producing allies including Russia (also known as “OPEC+”) announced after a video conference on Tuesday that they will continue to increase production by 400,000 barrels per day in February as originally planned.
The alliance expects the impact of the Omicron virus variant on global energy demand to be temporary. Since August last year, “OPEC+” has been increasing production by 400,000 barrels per day per month, and holds monthly meetings to review the policy until production returns to pre-epidemic levels.
Although the United States has repeatedly called on the organization to increase production to help the global economy recover from the epidemic and cool down high oil prices, OPEC+ stated that the market does not require additional oil.
Brent oil prices rose by 50% last year and have continued to rise this year.
OPEC+ is gradually reducing the scale of production cuts as demand and prices recover from weakness caused by the epidemic. In April 2020, OPEC+ decided to cut production by a record 9.7 million barrels per day to support the plunge in oil prices caused by the COVID-19 pandemic at that time.
So far, the alliance has reduced the size of its production cuts to about a third of the initial level. In principle, there are still about 3 million barrels per day of production cuts that need to be restored before September.
OPEC+ reiterated that it expects the impact of Omicron to be “moderate and short-lived” and that the economic outlook for both advanced and emerging economies remains stable as “the world becomes better equipped to deal with the new coronavirus epidemic and the challenges it brings.”
“The storm is over,” an OPEC delegate said, referring to the impact of the pandemic on oil demand last year.
Last month, the Omicron variant triggered travel bans and restrictions around the world, again threatening economic growth and oil demand. Absences caused by Omicron have snarled airlines, rail lines and hospitals around the world, and businesses are once again having to rethink their return-to-office plans.
However, OPEC believes that Omicron will not cause the same impact as when the epidemic first broke out in the spring of 2020; although epidemic tracking data from Hopkins University in the United States showed that there were more than 1.08 million new confirmed cases of COVID-19 in the United States on Monday, a record high for the epidemic. The highest record since the outbreak.
OPEC representatives pointed out that this is because increased demand for oil, including from the petrochemical industry, is offsetting the impact of continued decline in aviation fuel consumption. Demand for oil has been boosted by soaring natural gas prices in Europe and Asia, forcing many utilities to turn to fuel oil and coal to generate electricity.
Additionally, there is evidence that Omicron causes less severe disease than earlier variants in populations with significant immunity.
In its December 2021 monthly report, OPEC raised its demand for oil production in 2022 by 200,000 barrels per day. Overall, the organization expects global oil demand to increase by 4.2 million barrels per day this year.
But analysts are skeptical that OPEC+ can actually deliver on all of its monthly increases, given that some OPEC members such as Angola and Nigeria have recently struggled to meet their production targets.
Amrita Sen, chief oil analyst and co-founder of energy consulting firm Energy Aspects Ltd, said that in January OPEC+ may only increase production by 130,000 barrels per day to enter the market, and this data in February may rose to 250,000 barrels per day.
“Even though the headline number is 400,000 barrels per day, only half of that actually enters the market, maybe even less,” Mori told Bloomberg News.
Statistics from the International Energy Agency (IEA) last month showed that in October and November 2021, the production increase achieved by OPEC+ was 730,000 barrels per day and 650,000 barrels per day less than the monthly target respectively.
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