OPEC Plus maintains its oil production plans

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When officials from OPEC, Russia and other oil-producing countries met by video conference on Thursday, they had cause for concern. The biggest concerns were whether the emergence of a new variant of the coronavirus could torpedo the nascent global economic recovery and the reluctance of the United States and major Asian customers, including China, in the face of high oil prices.

At the end, the group known as OPEC Plus has decided to take the easy route and stick to a previously agreed upon program of gradually adding oil to the market. They decided to increase production by 400,000 barrels per day in January, as they have done in recent months.

But to show worried oil markets that they are ready to change that plan if necessary, producers said in a press release their meeting will “remain in session” so producers can monitor the market and “make immediate adjustments. if necessary”.

Prices fell sharply when it appeared that OPEC Plus would increase production. But they quickly recovered, and later in the day futures were trading up 1.7% to around $ 70.10 a barrel for Brent crude, the international benchmark.

While many analysts have predicted the group may suspend monthly increases agreed to in July, or even cut production, others said the decision on Thursday made sense.

In recent months, strong demand for oil and restricted production by producers have reduced inventories to low levels.

And analysts have pointed out that future demand is likely to hold up. “OPEC members in the Middle East will likely have seen good demand for their crude in January,” analysts from FGE, a consultancy firm, said in a report on Thursday as Asian economies advanced.

Given the unknowns about what impact the Omicron variant will have, the producers seem to have decided to wait and find out rather than making a decision that could have sent an unintentional negative signal to the markets.

Additionally, depending on the timeline put in place during the pandemic, OPEC Plus always has an upcoming meeting where changes can be made. The next scheduled rally is January 4.

Maintaining the planned increase will likely ease friction with the Biden administration, which orchestrated a release of oil stocks from the United States Strategic Oil Reserve last month in conjunction with more modest moves from other major oil consumers.

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