The 23-member oil cartel led by Saudi Arabia and non-member Russia, stood by a previous decision to phase out production cuts after a slump in global demand during the pandemic.
Today’s decision would aim to reverse the deep cuts in production made in 2020, when demand for motor and aviation fuel plummeted because of the pandemic lockdowns and travel restrictions.
Oil prices rose with the news after remaining stable ahead of the decision, as Brent crude rose 79 cents, or 1.1 percent, at $79.80 a barrel and U.S. West Texas Intermediate crude went up 67 cents, or 0.9 percent, to $76.75 by late morning.
OPEC+ announcement did not surprise most analysts as it had been expected that the organization and its allies would stick to their original plans.
After initially falling in Q4 2021 when reports of the new variant hit in late November, oil prices and stocks have since recovered as the markets calmed down.
Analysts believe that Omicron is unlikely to reduce demand for fuel, as the variant appears to have little effect on commuter activity.
Global manufacturing activity also remained strong during the holiday season, with consumer demand recovering from 2020.
However, a few regional crises may affect OPEC’s plans to increase production by the planned amount.
Increasing tensions between NATO and Russia over Ukraine are affecting oil output, as European natural gas prices have soared more than 30 percent after low supplies from Russia reignited concerns about an energy crunch this winter.
Higher prices for natural gas tends to boost demand for oil as utilities switch to burning crude.
Meanwhile, the ongoing talks over Iran’s nuclear weapons production this year may have a further effect on market supply if economic sanctions are ever lifted.
The International Energy Agency noted that OPEC had missed its production targets in October and November due to the capacity constraints of some its members.
Oil prices are being affected as some OPEC countries such as Nigeria have not been able to keep up with their share of production, limiting supply.
Oil production in Libya has been affected by civil unrest and pipeline maintenance problems, adding to disruptions two weeks ago after rebels blocked operations at two of the nation’s major oilfields.
Libyan output is expected to be about 500,000 to 600,000 bpd lower in the coming weeks, which will more than offset the planned monthly increase in OPEC+ production, according to Caroline Bain, the Chief Commodities Economist at Capital Economics.
OPEC still forecasts a production surplus in the first months of the year, compared with demand, but smaller than previously envisioned, according to the organization’s Joint Technical Committee.
