Oil prices rose by 3% early on Friday, extending gains from late Thursday, after the OPEC+ alliance said it could immediately revisit the planned 400,000 bpd increase for January if demand suffers in coming weeks.
OPEC+ decided on Thursday to stick to its initial plans to add 400,000 barrels per day to its collective oil production each month, to the surprise of some analysts who had expected a pause in the monthly supply additions in light of an expected oversupply early next year, a potential impact of the Omicron variant, and SPR releases from several nations led by the United States.
As early as the dust settled after the OPEC+ meeting, oil prices erased losses and bounced back on Thursday, after OPEC said that the group “agree that the meeting shall remain in session pending further developments of the pandemic and continue to monitor the market closely and make immediate adjustments if required.”
Analysts interpreted the wording as OPEC+ leaving the door open to a flexible approach to production and the group potentially meeting before the next scheduled meeting on January 4 if signs emerge of a serious impact of the new COVID variant on oil demand.
“The market appears to have taken comfort in the fact that OPEC+ is willing to reconvene and adjust production if necessary due to the Omicron variant,” ING strategists Warren Patterson and Wenyu Yao said on Friday.
“The decision by the group appears to be an attempt to buy themselves more time,” they added.
According to Saxo Bank, the market rallied after the meeting due to several reasons. These include the fact that traders have already priced in a significant and not yet realized drop in demand, the OPEC+ flexibility to make changes before January, the easing of the US-OPEC+ tensions, and the already months-long struggle of some OPEC+ members to pump to their quotas.
The next upside level to watch is the 200-day moving average at $72.85, Saxo Bank’s strategists said on Friday.
By Tsvetana Paraskova for Oilprice.com
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