With demand largely withstanding the omicron variant, the OPEC+ producer group on Tuesday approved a 400,000 barrel-a-day increase in production scheduled for February, as expected. Its analysts on Monday cut estimates for a surplus in the first quarter, predicting weaker supply growth from rivals.
“Yesterday’s technical OPEC+ committee presentation of a less over-supplied outlook for the oil market in 2022 against its assessment last month seems to have pleased the bulls,” said Bjørnar Tonhaugen, Rystad Energy’s head of oil markets. “We may see more action when we have more clarity over global production in the coming months.”
The overall supply-demand backdrop is looking better for OPEC+. The group’s production increases are likely to be less than the agreed levels as some members struggle. Russia failed to raise output last month while production in OPEC member Libya is expected to fall again this week. The market structure remains in a bullish backwardation pattern, which indicates continued supply tightness.
“The biggest challenge is starting to be to actually implement the theoretical rise in production as more and more producers start to struggle,” said Hans van Cleef, senior energy economist at ABN Amro.
Omicron’s spread isn’t reducing oil demand, given the low level of hospitalizations, Russia’s Deputy Prime Minister Alexander Novak said in an interview with state Rossiya 24 TV.
“We expect oil demand to recover to new record highs and Brent to trade in a USD 80–90/bbl range this year,” said Giovanni Staunovo, commodity analyst at UBS Group AG.
The OPEC+ Joint Technical Committee, which analyzes the market on behalf of ministers, sees a surplus of 1.4 million barrels a day in the first three months of 2022, about 25% less than it estimated a month ago, according to a report seen by Bloomberg.
Meanwhile, China could maintain border restrictions for the rest of this year as it prepares to host the Beijing Winter Olympics and a series of political events, according to Goldman Sachs Group Inc. The country is one of the few nations still committed to a “Covid Zero” approach, potentially hurting demand.
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