By Myra P. Saefong and Mark DeCambre
Crude-oil futures settled higher Thursday after a group of major oil producers decided to rollover their existing production policy and boost output at the start of next year, despite growing concerns over energy demand from the emergence of the omicron variant of coronavirus.
On Thursday, the Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, decided to rollover their current policy and raise monthly overall production by 400,000 barrels per day in January.
“Demand concerns were already on the rise and the last thing crude oil bulls were expecting to hear was another rollover of the current policy from the OPEC+ group,” said Fawad Razaqzada, market analyst at ThinkMarkets, in a market update. “Yet contrary to some expectations for only a moderate hike or no hike at all for January, that’s exactly what happened.”
So OPEC+ will be “adding more oil to the global supply and thus completely removing the threat of supply shortages at a time when demand is expected to fall,” said Razaqzada.
In its statement , however, OPEC+ said that its meeting remains in session “pending further developments of the pandemic and continue to monitor the market closely and make immediate adjustments if required.”
Oil prices recovered from session’s lows “as the market is realizing this decision is actually quite astute, proving that OPEC+ is playing chess not checkers,” Rebecca Babin, senior energy trader at CIBC Private Wealth US, wrote in emailed commentary.
“By moving ahead with production increase in the face of a 20% decline in prices, OPEC+ has essentially taken the political pressure from the U.S. and other consuming nations off the table,” she said.
“Secondly, OPEC+ is under no obligations to actually deliver these production increases,” Babin said. Over the past six months “OPEC+ has yet to meet their targets for any of its announced increases, keeping the market very tight.”
West Texas Intermediate crude for January delivery /zigman2/quotes/209723049/delayed CL00 -1.49% rose 93 cents, or 1.4%, to settle at $66.50 a barrel on the New York Mercantile Exchange after trading as low as $62.43.
WTI, the U.S. oil benchmark, was down more than 1% for the week as persistent concerns about crude uptake and the near-term strategy of OPEC+ have undercut values. November marked the biggest monthly declines for front-month WTI — down 21%.
“If omicron does impact demand, we would not expect this to be as disastrous as the 2020 oil price collapse,” said Chris Duncan, director of investments at Brandes Investment Partners. “OPEC will assuredly react faster in reducing production.”
In 2020, “the combination of a wave of supply growth and the fact that producers underappreciated the pandemic’s impact on demand made the collapse much worse,” he said in emailed commentary. “That situation is unlikely to be repeated.”
Meanwhile, February Brent crude , the global benchmark, rose 80 cents, or 1.2%, at $69.67 a barrel on ICE Futures Europe, following a 0.5% decline a day ago and a 5.5% tumble on Tuesday.
Fears are that fresh restrictions imposed by countries to combat the new strain of coronavirus will hurt appetite for energy products.
“The new omicron variant of COVID-19 could cost the global oil market as much as 2.9 million barrels per day (bpd) of demand in the first quarter of 2022, bringing total expected demand down from 98.6 million bpd to 95.7 million bpd, if it triggers more lockdowns or restrictions,” according to estimates from Rystad Energy, released in a report on Thursday.
“If the variant spreads rapidly, causing a rise in COVID cases and the reintroduction of lockdowns, Rystad Energy predicts that oil demand could fall from an expected 99.1 million bpd to 97.8 million bpd in December 2021 alone — a drop of 1.3 million bpd,” Rystad projects.
Also on Nymex Thursday, January gasoline tacked on nearly 0.9% to $1.968 a gallon and January heating oil rose 1.3% to $2.103 a gallon.
Natural-gas futures finished lower after the Energy Information Administration said domestic supplies of natural gas fell by 59 billion cubic feet for the week ended Nov. 26. That matched the average decline forecast by analysts, and compared with a five-year average decrease of 31 billion cubic feet for the period, according to S&P Global Platts.
January natural gas fell 4.7% to $4.056 per million British thermal units, with front-month prices at their lowest settlement since Aug. 25, according to Dow Jones Market Data.