Oil prices rebound ahead of December OPEC + meeting
With the target firmly set on tomorrow’s OPEC + meeting, oil markets are rising today in hopes that the alliance of oil producers will either stay the course on their conservative increases in supply or sink deeper. more in response to the threat posed by the Omicron variant.
The decisions made by the group invariably have a large impact on the world oil price, and while no public indication has been provided as to their decisions, it is likely that members will stay the course on their current modest increases in oil prices. supply or reduce slightly. Any noticeable course correction will likely wait until new information about Omicron and the efficacy of the vaccine emerges.
The OPEC + meetings in December are usually a landmark event in which the group sets the tone for next year, giving markets a glimpse of what the future may hold for the world’s oil supply. Both the new Omicron variant and the coordinated versions of SPR are both surprising and bearish upsets in the market that could impact members’ outlook for 2022.
The recent drop in oil prices was likely an overreaction to the Omicron news, but OPEC + is willing to wait for more data on the effectiveness of current vaccines before making any significant changes to its production strategy. This could prove to be prudent if the fear of the variant turns out to be a false alarm, or it could be a bearish misstep if Omicron’s impact is on par with Delta’s or worse.
Weighing the situation, it seems likely that OPEC + will maintain its 400,000 bpd increase or a slight decline. Maintaining the current course would have a slightly bearish effect on oil prices, potentially causing the price of Brent crude to drop $ 2 to $ 5 per barrel. Russia and Saudi Arabia currently account for around half of the planned monthly increases of 400,000 bpd, so any adjustment in production would disproportionately affect shipments of mainly Ural and Light Arab crude.
If OPEC + wants to bring relief to the market, it could cut monthly additions or perhaps announce an extension of supply cuts beyond December 2022; either action would be neutral or slightly bullish for the market.
Given the threat to oil demand posed by Omicron and the bearish promise of SPR’s publications, even as OPEC + cuts its January supply significantly, a strong price response is unlikely.
However, if a cut of more than one million bpd is announced, similar to the ‘Saudi surprise’ cut that kept an additional 1 million bpd out of the market in January and February 2021, a sharp rise in prices could materialize.
By 2022, the price of Brent crude is expected to average $ 65 per barrel over the year, as the market remains in surplus and threatened by demand-side risks, including lockdowns from Covid- 19, the negative elasticity of consumers due to high and negative prices. Impact on GDP. Brief spikes in prices above $ 80 or even $ 100 cannot be ruled out due to rising inflationary costs for labor and equipment and persistent gas shortages, but these Theoretical periods of volatility will be short lived.
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