OPEC and Russia debate the future of oil in a meeting with omicron and inflation as protagonists

The Organization of the Petroleum Exporting Countries (OPEC) decides this Tuesday if it is necessary to make any adjustments in its policy due to the impact of omicron on the economy. OPEC and Russia debate whether it is necessary to reduce the pumping of crude (which would increase oil prices) or continue with the established plan: increase production by 400,000 barrels per day every month to continue filling the gap that was generated with the large production cuts approved in April 2020 in the middle of the first wave of covid.

Things have changed a lot and quickly. At first, the impact of the omicron variant on the markets was devastating. Oil sank and went from flirting with $ 87 a barrel of Brent to losing $ 70 a barrel. Ómicron threatened to return economies to a kind of confinement that would undoubtedly reduce fuel consumption and, therefore, the demand for oil.

However, after several weeks the situation seems somewhat different. Ómicron is expanding fast but its impact on health is minor, which is allowing governments to keep economies open. Oil has recovered much of the ground lost in the first weeks of December and Brent is approaching $ 78 a barrel again. Demand is resisting and OPEC and Russia may decide to continue opening the taps for oil to flow around the world.

Added to all this is the inflation debate, which is reaching unsuspected levels in much of the world. Beyond the price increases caused by the shortage of chips and other materials, the increase in energy prices has been the main driver of the rise in the cost of living. If OPEC and Russia decide to contain crude production and raise prices, the impact on inflation could pose a serious threat to the global recovery.

The decision comes on Tuesday

As confirmed to Efe This Monday in Vienna, sources from the secretariat of the OPEC decision will be adopted in a ministerial teleconference of the group of 23 countries called for tomorrow at 13.00 GMT.

Previously, the ministers of the sector of the thirteen partners of OPEC held a virtual meeting this afternoon, focused on the appointment of a possible successor to the current secretary general of the organization, el nigeriano Mohamed Barkindo, whose second term expires at the end of July 2022.

The most recent developments in world oil markets will be studied in two internal committees, one at the technical level (today) and the other at the ministerial level (tomorrow), whose analyzes will be taken into account for the decision of the so-called OPEC + (OPEC and allies).

Oil is expected to keep flowing

According to analysts, that alliance led by Saudi Arabia and Russia is expected to give the green light to the next stage of the plan adopted in July 2021, which forecasts monthly increases of 400,000 barrels per day (bd) until September 2022.

The objective is to return to the market the barrels that it still maintains underground from the large cut, of 9.7 million barrels per day (mbd), which it adopted in April 2020 to compensate for the historic drop in energy demand caused by restrictions on the mobility to stop the spread of the coronavirus.

In its last virtual meeting, on December 2, OPEC + confirmed the increase corresponding to January, so that the official limit of joint production rose from 40,094 to 40,494 mbd.

Of that volume, 24,554 mbd corresponds to OPEC (without Venezuela, Iran and Libya suffering internal problems) and 15.94 mbd to the group of allies. Venezuela, Iran and Libya are exempt from the commitment to limit their pumping because their industry suffers involuntary drops due to various reasons, such as sanctions, conflicts and crises.

Iranian crude exports could return to international markets this year if a compromise is reached in the multinational negotiations taking place in Vienna to reactivate the agreement on its nuclear program.

Omicron fades

Increases in OPEC + oil supply add to the release of strategic reserves announced by the US at the end of November and similar measures from China, India, Japan, South Korea and the United Kingdom, totaling about 70 million barrels.

Washington launched the unusual initiative after OPEC + ignored its requests to open more taps to stop rising energy prices and rising inflation. The producer alliance has so far not reacted to that measure, nor to the current strong expansion of SARS-CoV-2, driven by the contagious omicron variant.

Thus, in its latest report on the market situation, OPEC kept its forecast on world oil demand in 2022 unchanged, estimating that omicron would have only a “mild and short-lived” impact. The organization’s experts foresee that the consumption of “black gold” will increase this year by 4.15 mbd (4.3% compared to 2021), reaching 100.79 mbd.

The price of a barrel of Brent crude, the reference in Europe, appreciated last year by 52% and ended the year at 77.78 dollars, while that of intermediate oil from Texas (WTI, the reference for the United States) rose 55%, up to $ 75.21.