Opec+ downplays Omicron impact ahead of output decision

The Opec+ producer alliance expects the Covid-19 Omicron variant to have a tempered effect on oil demand, allowing it to continue unwinding a production cut implemented in early 2020 in response to the pandemic-induced demand collapse.

Opec+ ministers will make a decision on output policy for February when they meet tomorrow, informed by recommendations from the group's Joint Technical Committee(JTC) and Joint Ministerial Monitoring Committee (JMMC).

An internal report prepared by the Opec secretariat for review by the JTC, seen by Argus,downplayed the disruption from the Omicron variant, saying its effect was projected "to be mild and short-lived, as the world becomes better equipped to manage Covid-19 and its related challenges."

This, the report said, is "in addition to steady economic outlook in both the advanced and emerging economies."

As a result, the Opec secretariat kept its forecast for global oil demand growth in 2022 unchanged at 4.2mn b/d. "Growth previously expected in the fourth quarter of 2021 now shifted to the first quarter of 2022," it said.

But the secretariat saw much tighter supply-demand balances for this year when compared with its previous month projections.

In its base case scenario — one of three discussed in the report — the secretariat put the surplus at 1.4mn b/d in the first quarter, down markedly from the 3.1mn b/d oversupply it forecast last month, when data on the Omicron variant was still limited.

And for the full year, the secretariat put the surplus at 1.4mn b/d, down from its previous forecast of 1.7mn b/d.

Multiple delegates have told Argus that they expect Opec+ to sanction another 400,000 b/d hike in its overall production quota for February when it meets tomorrow, in line with the roadmap that it set out in July to restore the production it took off the market in May 2020.

"I think at this meeting we'll keep to the plan to increase production in February," one delegate said. "I don't see any reason to change the plan so far."

The plan envisaged monthly rises of 400,000 b/d through to April 2022, and then of 432,000 b/d every month until the 9.7mn b/d it originally cut is returned. The increases must be rubber-stamped at now monthly ministerial meetings and can be paused for up to three months if market conditions warrant it.

The JMMC is scheduled to meet virtually at 13:00 Vienna time, followed by a meeting of Opec+ ministers at 14:00 Vienna time.

By Adal Mirza, Nader Itayim and Ruxandra Iordache