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OPEC+ agrees to increase oil output

Top News2022-01-05


A key group of the world's major oil producers has agreed to increase output moderately next month.

The Organization of the Petroleum Exporting Countries and their allies (OPEC+) decided on Tuesday to raise production in February by additional 400,000 barrels per day (bpd). 

The decision was widely expected for two main reasons - crude supply disruptions in Libya - one of Africa's leading exporters -  and the limited impact of the Coronavrius Omicron variant on the market.

Rystad Energy's analyst Bjornar Tonhaugen said OPEC+ was confident in part because global transport data suggested Omicron had not yet significantly impact oil demand.

"Ongoing (oil production) outages in Libya, struggling production recovery in Nigeria, and reduced expectations for Russian production capacity add bullish weight to the scale from the supply side," he said, according to Reuters.

Viktor Katona, analyst at JBC Energy, told CGTN. "In terms of consumption the impact of Omicron has been significantly less - roughly half of what it was with Delta",

"Essentially we are still firing on all cylinders in terms of global demand. The world has already run down its crude stocks that it had previously. We just need the oil to come back at some point." Thus, OPEC's latest decision was unavoidable in order to keep the oil market balanced.

Furthermore, U.S. crude reserve release and a possible Iran nuclear deal would only play a minor role in the OPEC decision-making for the upcoming months. 

"Even if a (nuclear) deal is concluded, it still takes roughly six months until that deal reaches a point where Iran can actually export its crude."   

Katona assumed that this year the world will do a "better job handling the pandemic" and therefore supply and demand for crude oil should steadily rise - a positive outlook for the oil market, post-pandemic.

In 2020, OPEC+ saw record production cuts of 10 million bpd. Then, last year, the price of Brent crude rose 50 percent, and was still trading above $80 on Tuesday.

Meanwhile, Europe's natural gas market has been at the centre of an energy crisis, with prices quadrupling compared to last year. 

But a recent decision by the European Commission to define natural gas as a green or sustainable source of energy could help, according to Katona. Nevertheless, "Europe still needs to find those providers that would be big enough to accommodate Europe's interest," he said.

Uncertainty remains over issues such as the Nord Stream 2 pipeline between Russia and Germany as well as commitments to Gazprom - the largest supplier of natural gas to Europe. 

So geopolitical concerns could mean an additional burden to the already pandemic-hit energy market. 


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