Oil market shrugs off Opec+ output hike decision

Oil prices ticked higher today despite the Opec+ group's decision to press ahead with a 400,000 b/d crude production increase in January.

The Ice Brent futures contract with February delivery was trading at $69.61/bl at 17:53 GMT, up by 74¢/bl from yesterday's settlement. The front-month February Nymex WTI contract was changing hands at $66.45/bl, adding 88¢/bl from yesterday's close.

Prices picked up after initially sliding on the news that Opec+ is going ahead with a 400,000 b/d hike to its collective quota in January. Concerns surrounding the potentially more transmissible Covid-19 Omicron variant and an upcoming strategic petroleum reserve (SPR) release by key crude buyers had raised expectations that the group might deviate from its previously agreed roadmap to raise output each month until all of last year's cuts are unwound. But despite its own forecasts pointing to a sizeable stockbuild in the first quarter of next year, the group has decided against changing course.

Meanwhile, the White House confirmed today that it will not reconsider its plans to draw 50mn bl of crude from the US SPR, adding that the co-ordinated stocks release, combined with the Opec+ decision to raise output, "should help facilitate the global economic recovery".

US bank Goldman Sachs said the market's muted reaction to the Opec+ decision partly reflects the fact that the group has left open the option for further discussions and an "immediate adjustment" to output if required. It leaves the door open for the group to reassemble before its next scheduled meeting on 4 January, although this is only likely be happen if oil prices continue to fall, one delegate told Argus.

Goldman Sachs maintains a bullish stance, saying that prices have overshot fundamental risks. "At this point right now, it's pricing in ... a disaster scenario around Omicron," the bank's global head of commodities research Jeff Currie told Bloomberg TV today. "We estimate it's pricing in no plane flying around the earth for the next three months. The market's overshot to the downside."

Swiss bank UBS said its base case study sees the Omicron variant having a similar impact on energy markets as the Delta strain. "Hence, we look for higher oil demand and prices in 2022," the bank said.

By Ruxandra Iordache