Olusola Bello

The OPEC+ group has maintained its plan to ease the production cuts in January by 400,000 barrels per day, despite mounting evidence of a larger-than-expected oil surplus early next year.

The ministers of the various countries in the group at their meeting on Thursday decided to keep the policy to add 400,000 bpd to the market each month, as they have been doing since August.

All ministers of the OPEC+ group appear to be in agreement with increasing output by another 400,000 bpd next month­—that is, rolling over the current supply addition policy, Amena Bakr, Deputy Bureau Chief & Chief Opec Correspondent at Energy Intelligence, reported, citing sources.

There will also be an extension of the compensation cuts, the sources added.

Before the full OPEC+ ministerial meeting, the Joint Ministerial Monitoring Committee (JMMC) held a meeting, which ended with the panel not issuing any recommendation for OPEC+ production in January.

Shortly before the JMMC meeting began, reports had it that the OPEC+ group could discuss adding just 200,000 bpd in January instead of 400,000 bpd, or even a pause in the ramp-up of production, sources told Reuters.

Going into the meeting, OPEC+ was said to be expecting a worse-than-previously expected surplus in the first quarter of 2022.

Some analysts expected the alliance to indeed pause the cuts, considering the expected oversupply, a potential impact of the Omicron variant, and the SPR releases from several nations led by the United States.

Earlier this week, Saudi Arabia and Russia had already signaled that the new variant—still very little researched—shouldn’t be a reason to jump to hasty decisions.

Russia currently doesn’t see the need for urgent measures, Russian Deputy Prime Minister Alexander Novak said on Monday.

“We don’t see such a need, we will carefully monitor the situation, but there is no need to rush to hasty decisions,” Novak, Russia’s chief oil policy negotiator at OPEC+, said.

So OPEC+ stayed the course and is raising its total production quota by 400,000 bpd in January. The new quotas per country, as reported by Energy Intelligence’s Bakr, include Saudi Arabia and Russia producing up to 10.122 million bpd each in January, with a total OPEC+ quota of 40.494 million bpd as follows:

Meanwhile Oil prices fell to their lowest point since mid-August as the Organization of the Petroleum Exporting Countries and its allies (OPEC+) agreed to hold firm on the group’s plans for oil production.

The group converged at 1pm GMT to discuss the potential knock to fuel demand as the world assesses what potential damage the Omicron variant of COVID-19 could do. The meeting confirmed plans to add another 400,000 bpd of supply for January 2022.

Crude (CZ=F) futures were trading at $67.32, 2.3% lower than the previous session by mid-afternoon.

Futures contracts for Brent Crude (BZ=F) also crashed to around 1.5% lower.

 

Ministers from Saudi Arabia and Iraq had earlier indicated the group would sustain that output policy. Russia also said it believed there is no need for urgent action on the oil market.

Producers have previously said they did not want to hamper a fragile energy industry recovery with oversupply.

Analysts also noted that sustaining the current policy would look bullish for expectations of economic recovery despite Omicron.

Peter McNally of Third Bridge said: “Were OPEC+ to add another 400,000 bpd of supply for January 2022, it would be a signal that these countries expect the recovery to continue as previously planned.

“But this year began with Saudi Arabia unilaterally slashing production by 1 million bpd as the winter wave of COVID dashed the pace of recovery.

“This week’s meeting of OPEC+ ministers is shaping up to be one of the most significant since the pandemic recovery demand recovery began, and the key signal will be how much more oil will be added to supply to start the new year.”

Other analysts had questioned whether the group could look to pause increasing production to reassess the market due to price volatility and fears of the Omicron variant bringing countries to a standstill once again.

Last year, OPEC+ made record output cuts of 10 million bpd, equivalent to about 10% of global supply. It has scaled those back so cuts still in place now stand at about 3.8 million bpd.

And production is still slow. A Reuters poll published earlier this week found that OPEC producers had not hit the top end of their allowed oil allowance of 254,000 bpd in November