Oil prices rose by 1% early on Wednesday, with Brent Crude topping $80 per barrel, after OPEC+ signaled confidence in oil demand through the Omicron wave and reiterated its view that the variant's impact on fuel consumption would likely be "mild and short-lived."
As of 10:02 a.m. EST on Wednesday, before the weekly U.S. inventory report from the Energy Information Administration (EIA), WTI Crude was up 1.47% at $78.12.
Brent Crude prices had gained 1.47% and traded above $81 a barrel. This was the highest price at which Brent has traded since before Thanksgiving and the major sell-off on the market sparked by fears of Omicron's threat to global oil demand.
Supply disruptions in Libya have also likely supported oil prices through this week, although the biggest factor has been OPEC+ sticking to its plan to continue easing the production cuts by 400,000 barrels per day (bpd) in February.
Despite the fact that OPEC+ will actually be adding more supply amid uncertainties in demand next month, the group's move signaled confidence in resilient demand in the short term and further helped to appease major consuming nations-led by the United States-which have called for more supply to alleviate high crude prices and high prices at the pump.
Another bullish takeaway from the OPEC+ meeting on Tuesday has been analyst estimates that several members in the alliance are struggling to pump to their quotas, and the group will actually add fewer barrels than the nominal quota increase of 400,000 bpd for February.
"With several members including Nigeria, Angola and Russia struggling to reach their quotas, the actual increase, just like previous months could end up being half the agreed 400,000 barrels a day. Above $80, Brent may take aim at $83 with support at $78.50," Saxo Bank said in a daily market commentary today.
The EIA inventory report could spoil the party if it confirms later on Wednesday the large build in U.S. gasoline inventories estimated by the American Petroleum Institute (API) on Tuesday.
By Tsvetana Paraskova for Oilprice.com
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Comments
OPEC+’s decision signalled its confidence in both the robustness of the global oil market and the global oil demand and the recognition that the Omicron variant’s impact on the global economy and oil demand is extremely mild meaning that it is extremely unlikely that the major economies of the world will re-impose lockdown.
Oil prices are already well on their way to recoup all their losses in December with Brent crude headed towards $85 or higher a barrel in the first quarter of 2022.
A supply disruption in Libya hardly affects oil prices and demand these days since the oil market has already factored in the continued volatility of Libya’s oil production.
And while some members of OPEC+ like Nigeria and Angola are struggling to reach their production quotas, Russia isn’t one of them as the author of the article mistakenly claimed. Russia had exceeded its OPEC+ production quota every month of 2021 until November. Furthermore, Russian Deputy Prime Minister Alexander Novak said last month that Russia has plans to boost oil and condensate production in 2022 by 3%-5% from a daily average of 10.5 million barrels a day (mbd) in 2021 to 10.8-11.0 mbd in 2022.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London