The OPEC and its allies started two days of meetings to discuss a planned output increase, with expectations growing that the group will take a pause due to the threat from a new virus variant.
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Ministers have been tight lipped about their intentions. One of the few to speak about output policy, Iraqi Oil Minister Ihsan Abdul Jabbar Ismaael, said he would go along with whatever the group decides, whether it's a supply hike or a pause. Most analysts and traders surveyed by Bloomberg said the latter was likely to be the case.
The oil-market situation has reversed abruptly for the coalition led by Saudi Arabia and Russia. Over the past month, it faced pressure from major consumers like the U.S. to ramp up supplies more quickly. Even a modest hike looks riskier after the omicron strain of Covid 19 sent crude crashing into a bear market.
The sudden appearance of a new and potentially more dangerous variant comes on top of new lockdowns, said the Angolan Minister of Mineral Resources and Petroleum Diamantino Azevedo at the opening session of the meeting on Wednesday. In these uncertain times, it is imperative that OPEC be prudent in our approach and prepare to be proactive as market conditions warrant. In New York, oil futures are down 18% from the seven-year high reached in late October when the recovery in global oil demand from the pandemic caused fear of the inflationary danger of surging fuel costs.
The U.S. President Joe Biden co-ordinated a multinational release of more than 50 million barrels from emergency oil stockpiles, which was announced on November 23. Frustrated by Riyadh s refusal to speed up the revival of supplies halted during the epidemic.
The move caused the 23- nation OPEC alliance to contemplate retaliating by calling off its next output increase, a 400,000 barrel-a-day tranche scheduled for January. The group s inclination toward a pause has hardened when the new virus offshoot caused a 12% price rout in London on Friday.
Helima Croft, chief commodities strategist at RBC Capital Markets LLC, said that the pause option was designed for the situation when the producer group announced their phased increase plan in July.
International markets will be inundated with a 3 million barrel-a- day surplus during the first quarter, according to internal research by the Organization of Petroleum Exporting Countries. The excess could be as much as 4.8 million barrels a day in a more pessimistic scenario for demand.
With the outlook deteriorating, 18 of 25 traders, analysts, and brokers predicted that OPEC will delay the production boost. Prince Abdulaziz bin Salman, Saudi Arabian energy minister, has repeatedly opted for caution in restarting halted production.
I expect OPEC to vigorously defend the supply balance they have worked hard to restore since last year, said Vandana Hari, founder of Vanda Insights in Singapore.
Such a move would cause Riyadh's already-fraught relationship with Washington to be strained. A recent U.S. diplomatic visit to the region shows that the two sides are trying to calm tensions.
There is not a rule out that Prince Abdulaziz pulls another rabbit out of the hat, given his affinity for surprise endings, said Croft.
The proceedings began on Wednesday at 1 p.m. London time, when 13 OPEC members convened online. That will be followed by a meeting of their analytical body -- the Joint Technical Committee -- a few hours after. The full OPEC alliance is expected to gather virtually on Thursday.
Iraq s position toward continuing the release of 400,000 barrels a day, or pausing it, depends on what OPEC will decide in its meeting, the country s oil minister told the Iraqi news agency.
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