Oil Price Rebounds as OPEC Defers Meetings, Studying New COVID-19 Strain

Emmanuel Addeh in Abuja with agency report

The Organisation of Petroleum Exporting Countries (OPEC) and its allies have postponed their meetings that ought to have held yesterday, to tomorrow, giving them more time to assess the impact of the new Omicron COVID-19 variant on oil demand and prices, according to OPEC+ sources and documents.

On the other hand, a joint ministerial monitoring committee would meet on Thursday instead of Tuesday when a policy decision would likely be announced.

“We need more time to understand what this new variant is and if we need to overreact or not,” one OPEC+ source told Reuters.

Last Friday oil prices dropped together with other financial markets’ instruments by more than 10 per cent, their largest one-day drop since April 2020, as the new variant scared investors and added to concerns that a supply surplus could swell in the first quarter.

But yesterday, oil rebounded from one of its biggest ever daily drops as traders assessed the risks to global demand from the Omicron variant of Covid-19 and the potential response by OPEC and its allies.

Precisely, in a major gain yesterday, Brent for January settlement rose 4.1 per cent to $75.67 a barrel as at 10:33 a.m. in London, while earlier on the day, prices rose as much as 5.2 per cent in intraday trade after ending 11.6 per cent lower on Friday. WTI for January delivery climbed 4.6 per cent to $71.28 a barrel.

Brent rallied as much as 5.2 per cent, climbing along with West Texas Intermediate (WTI) as the World Health Organisation (WHO) warned the new strain could have severe consequences, while South Africa has said it appears to be more infectious, but with mild symptoms.

To have a proper grasp of the impact of the new strain on the market, OPEC and its allies have now moved technical meetings in order to give themselves time to review the rout to Friday.

The new variant has already prompted the United States, the European Union (EU), the United Kingdom, and many other countries to ban flights from South Africa and other countries in the south of Africa where the Omicron strain was detected first.

Japan and Israel closed off their borders to all foreign travellers, while a growing number of countries in Europe are reporting detected Omicron infections.

OPEC+ is scheduled to gather later this week and decide on its output plan for January, with a pause in supply hikes on the cards, according to Morgan Stanley. OPEC is expected to take a cautious stance when it gathers this week.

On its part, Morgan Stanley said the oil market expected that the Omicron variant of the coronavirus could dampen oil demand in coming weeks, slashing its Brent price forecast for the first quarter of 2022 to $82.50 a barrel from $95 per barrel expected earlier.

According to Morgan Stanley’s note cited by Reuters, the oil market appears to be pricing in slower global demand due to the new variant, as well as continued concerns that the balance on the market would tip into a surplus as soon as the first quarter of 2022.

This week’s OPEC+ meeting may pause the monthly 400,000 bpd increase in production because the alliance has neither the capacity to do so, nor a reason to exacerbate an oversupply, Morgan Stanley added.

Yet, oil prices could reach recent highs after the middle of 2022, the bank noted and raised its third quarter 2022 forecast to $90 per barrel Brent from $85 a barrel previously expected.

“Brent prices rising above recent highs again is probably something from mid-2022 and beyond,” Morgan Stanley analysts said in the note.
Before Friday, OPEC had already predicted the surplus would grow steeply after the United States and other major consumers decided to release oil stocks to help cool down prices.

OPEC+ has been releasing 400,000 barrels per day of oil per month while winding down its record cuts from last year, when it curbed production by as much as 10 million bpd to address lower demand caused by the virus lockdowns.