OPEC and its allies are expected to revive more oil supplies when they meet this week, underscoring the group’s optimism in the outlook for global demand.
The 23-nation alliance led by Saudi Arabia and Russia is likely to proceed with another modest monthly hike of 400,000 barrels a day as it restores production halted during the COVID-19 pandemic, a Bloomberg survey found.
Several national delegates said they expect the boost — due to take effect in February — to go ahead.
The OPEC and its partners see global demand continuing to recover this year, taking only a “mild” hit from the Omicron variant of SARS-CoV-2.
Their confidence is being validated as busy traffic across key Asian consuming countries and dwindling crude inventories in the US buoy international prices near US$80 a barrel.
“The market can take the extra oil, as long as Omicron or a macro downturn don’t crush demand again,” said Bob McNally, president of the Rapidan Energy Group consultancy and former senior director for international energy on the US National Security Council.
Fifteen of 16 analysts and traders surveyed by Bloomberg predicted the output increase would be approved when the coalition gathers online tomorrow.
Indicators on fuel consumption suggest the barrels can be absorbed, with all but one major Asian country registering a rise in mobility month-on-month, according to data compiled by Bloomberg using Apple Inc statistics through Monday last week.
Adding supplies would also show that Riyadh continues to be mindful of the inflationary risks afflicting its biggest customers, having acquiesced last month to US President Joe Biden’s calls for extra production to cool runaway gasoline prices.
While that surprise move was initially read as bearish by traders, Saudi Minister of Energy Prince Abdulaziz bin Salman helped to shore up market sentiment by resolving that OPEC’s meeting would remain technically “in session,” allowing it to reverse the output increase at short notice if needed.
Proceeding with the next monthly increase is not without risks.
China, Asia’s biggest oil user, has shown signs of weakening fuel demand amid its relentless zero-COVID-19 approach and tough line on pollution, road congestion data from local providers such as Baidu Inc (百度) showed.
In the US, airline cancellations are already piling up, with 1,125 flights scrubbed as rising COVID-19 cases hobble staffing.
OPEC expects the world oil market to return to surplus, which would only widen in the coming months as supply jumps from the group’s rivals — including the deployment of emergency reserves by the US and other consumers.
With the excess projected to reach a hefty 2.6 million barrels a day in March, the group might need to reconsider further increases.
“OPEC+ is highly unlikely to drop the ball now and allow inventories to rise significantly,” SEB AB chief commodities analyst Bjarne Schieldrop said.
However, for the time being, the group is not especially troubled by the prospect of a rebound in stockpiles, a senior delegate said.
Inventories are at low levels, but typically replenish during the seasonal demand lull of the first quarter, the delegate said.
Stocks in developed nations are 170 million barrels below their average for the years 2015-2019, OPEC data showed.
“I see no reason why the group won’t continue to add barrels at the agreed pace, not least considering the limited impact on global demand from surging Omicron cases,” said Ole Hansen, head of commodities research at Saxo Bank A/S in Copenhagen.
OPEC+’s output increase would in any case be tempered as many countries — most notably Angola and Nigeria — struggle to make the production hikes they are allowed, because of constrained investment and operational disruptions.
As a result, the actual boost next month is likely to fall short of the official 400,000 barrels a day, McNally said.
OPEC members have a separate meeting planned on Monday to choose a new top official, with delegates saying that Haitham al-Ghais of Kuwait — the only candidate formally nominated so far — enjoys widespread support for the position.
If approved, al-Ghais would succeed OPEC Secretary-General Mohammad Barkindo, who would end six years in the post in July.
“He’s very smart, and a good analyst,” said Johannes Benigni, chairman of the JBC Energy Group consultancy in Vienna.
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