It looks as if OPEC+ prefers to wait for more details on Omicron and its potential for demand destruction. Until then, it will be business as usual.
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher late Thursday after rebounding from earlier losses. The price action suggests a “sell-the-rumor, buy-the-fact” situation is taking place after OPEC+ announced it would stick to its policy of incrementally boosting output. Additionally, it looks as if officials are going to downplay the impact of the Omicron coronavirus variant until they receive more information about its severity.
At 20:01 GMT, January WTI crude oil futures are trading $67.12, up $1.55 or +2.36% and February Brent crude oil futures are at $70.23, up $1.36 or +1.97%.
OPEC and its allies agreed on Thursday to stick to their existing policy of monthly oil output increases despite fears that a U.S. release from crude reserves and the new Omicron coronavirus would lead to a fresh oil price rout.
Fearing another supply glut, sources told Reuters the Organization of the Petroleum Exporting Countries, Russia and allies, known as OPEC+, considered a range of options in talks on Thursday, including pausing their January hike of 400,000 barrels per day (bpd) or increasing output by less than the monthly plan.
But any such move would have put OPEC+, which includes Saudi Arabia and other U.S. allies in the Gulf, on a collision course with Washington. Instead, the group rolled over its existing deal to increase output in January by 400,000 bpd.
OPEC+ remains concerned that the COVID-19 pandemic could once again drive down demand. Surging infections have prompted renewed restrictions in Europe and the Omicron variant has already led to new clamp downs on some international travel.
“We have to closely monitor the market to see the real effect of Omicron,” one OPEC+ delegate said after the talks.
The Biden administration could adjust the timing of its planned release of strategic crude oil stockpiles if global energy prices drop substantially, U.S. Deputy Energy Secretary David Turk told Reuters on Wednesday.
Turk, speaking in a video interview for the Reuters Next conference, added that other consumer nations that had agreed to release strategic reserves in concert with the United States to tame prices could also adjust their timing, if needed.
The late session price action indicates traders may be relieved that OPEC+ did not increase production more than the expected 400,000 barrels per day.
In other words, the group decided not to fight the strategic releases from the United States, and other major oil consumers.
One takeaway from Thursday’s meeting – OPEC+ remains concerned that the COVID-19 pandemic could once again drive down demand.
However, both Russia and Saudi Arabia, the biggest producers in OPEC+, had both said there was no need for a knee-jerk reaction. Furthermore, Russian Deputy Prime Minister Alexander Novak said the oil market was balanced and global oil demand was slowly rising.
It looks as if OPEC+ prefers to wait for more details on Omicron and its potential for demand destruction. Until then, it will be business as usual.
James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.