OPEC+ Increases January Quota Despite Concerns Over New Virus Variant

The Omicron variant has spooked global markets and sent crude prices tumbling by more than $10/bbl since it was discovered in late November.

Petroleum Storage Tanks
Source: Getty Images.

OPEC and its non-OPEC allies, known collectively as OPEC+, struck a cautious tone at their latest ministerial meeting amid the news that a new COVID-19 variant called Omicron is spreading across the globe. On Thursday, 2 December, OPEC+ elected to stick to its gradual recovery schedule by approving a production increase of 400,000 B/D in January.

However, OPEC+ also said in a statement that the ministerial meeting will remain in session for at least another month to allow the group to "make immediate adjustments" based on the global economic impact of the Omicron variant.

“In a highly uncertain situation, the best option is to stick with the plan. That is exactly what OPEC+ has done today," Ann-Louise Hittle, vice president of macro oils at Wood Mackenzie, said in a note following the meeting. She added that with the caveat of an ongoing session, OPEC+ has positioned itself to “react swiftly” if the outlook on short-term demand was to worsen in the coming days and weeks.

The combined OPEC+ quota for January production is now just shy of 40.5 million B/D. The next scheduled meeting is set for 4 January and the group has agreed to consider monthly increases of 400,000 B/D until the end of 2022.

On Thursday, West Texas Intermediate (WTI) contracts for January settled at $66.50/bbl, up nearly a dollar during the regular session but down 15% from a week ago. Brent crude futures were up 1.16% for the day and settled at $69.67/bbl.

Despite the modest intraday gains, WTI has tumbled by more than $13/bbl since last week. Brent crude has taken a similar plunge of around $12/bbl. Both benchmarks are now flirting with prices not seen since August when the Delta variant became the dominant strain of COVID-19 in North America and Europe.

Global markets have been rattled by the recent discovery of a new COVID-19 mutation that was met with travel restrictions to and from southern Africa, which is where scientists first identified the variant. The World Health Organization has suggested that the Omicron variant may be more infectious than prior versions of the virus. The new strain has since been detected in two dozen countries, including the US, Canada, and most of western Europe.

In a note issued after the OPEC+ decision, Oslo-based Rystad Energy said that a rapid rise of new COVID-19 cases as a result of the Omicron variant could spur new lockdowns which will have an immediate impact on oil markets.

In that event, the energy consultancy estimated global oil demand could drop from its forecast 99.1 million B/D in December to 97.8 million B/D. Things could be worse in January, Rystad said, noting that demand may drop by 4.2 million B/D from earlier forecasts to 94.2 million B/D.