OPEC+ likely to stick with scheduled Feb output increase, sources say

A grouping of the Organisation of the Petroleum Exporting Countries (OPEC) and allies led by Russia is expected to stick to its plans for a February output increase when it meets on Tuesday, predicting a mild and short-lived impact on demand from the Omicron coronavirus variant, three sources from the group of oil producers told Reuters on Monday.

OPEC+ has been gradually unwinding record oil production cuts agreed in 2020 to counter the demand destruction from the pandemic.

Current plans would see it raise its February production target by 400,000 barrels per day (bpd) as it has done each month since mid-2021.

In a technical report seen by Reuters on Sunday, the group downplayed the impact on the oil market from the Omicron variant.

“The impact of … Omicron … is expected to be mild and short-lived, as the world becomes better equipped to manage COVID-19 and its related challenges,” the Joint Technical Committee (JTC) report said.

“This is in addition to a steady economic outlook in both the advanced and emerging economies,” it added.

While the group has been raising its targets, its production increases have not kept pace as some members struggle with capacity constraints.

OPEC+ oil producers missed their production targets by 650,000 bpd in November and 730,000 bpd in October, the International Energy Agency (IEA) said last month.

OPEC will hold a meeting on Monday at 1300 GMT to discuss the appointment of a new secretary-general to succeed Nigeria’s Mohammad Barkindo.

Haitham al-Ghais, a former Kuwaiti governor to OPEC, is expected to get the job as he enjoys wide support from member countries, sources said last week.

Current OPEC’s Secretary-General Mohammad Barkindo, who helped clinch a deal with non-OPEC producers such as Russia to cut global oil output to balance the market, is due to step down at the end of July once his second three-year term ends.

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Brent crude futures, the global oil benchmark, gained 1.15percent to $79.93 a barrel by 9.51 GMT+1 on Monday, while U.S. West Texas Intermediate (WTI) crude futures increased 1.04percent to 76.25 a barrel.

Abhishek Chauhan, head of commodities at Swastika Investmart Limited, told Reuters that “tightened supplies from Libya ahead of OPEC+ meeting kept the market sentiments positive”.

The JTC is also meeting on Monday to discuss market fundamentals.

This will be followed by a meeting of OPEC and allies led by Russia, known as OPEC+, tomorrow, to debate whether to go ahead with raising output targets by 400,000 barrels per day (bpd) in February.

In the JTC report’s base scenario, OECD commercial oil stocks in 2022 will remain below the 2015-2019 average in the first three quarters before rising above that average by 24 million barrels in the fourth quarter.

The scenario assumes 40m barrels are released from strategic petroleum reserves in the first half of the year, and that 13.3m barrels are returned to the US strategic reserve in the third quarter.

The report kept forecasts for the growth in oil demand in 2021 and 2022 unchanged at 5.7m bpd and 4.2m bpd respectively.

In 2021, oil prices climbed to a three-year high, at over $80 a barrel.

On December 20, oil prices had dipped to $70 amid rising cases of the Omicron coronavirus variant in Europe and the United States.

According to Reuters, economists and analysts had projected that Brent crude would average $73.57 a barrel in 2022, about 2% lower than the $75.33 consensus in November.

In Nigeria, President Muhammadu Buhari had signed the 2022 budget into law with an average of $60 per barrel for the oil price.