One thing is certain when officials from the Organization of the Petroleum Exporting Nations (OPEC), Russia, and other oil-producing countries convene by teleconference on Thursday to determine how much oil to produce in January.
They will want to make sure that last Friday’s abrupt, rapid fall in oil prices — a drop of more than 10% in a matter of hours, triggered by rumours of a potentially dangerous new Covid-19 version — does not turn into a rout in the oil market going forward.
However, the producers’ group, known as OPEC Plus, must also consider the ramifications of the announcement last week that the United States and several other countries, including China, will release tens of millions of barrels of oil from their stockpiles in order to bring down what the White House described as “excessive gas prices at the pump.
According to analysts, this decision, which might result in a jump in oil prices in the first quarter of next year, represents a kind of revolt against OPEC Plus by its consumers.
“OPEC’s capacity to control markets is severely hampered as a result of this,” said Raad Alkadiri, managing director for energy and climate at Eurasia Group, a political risk consulting company.
The meeting’s most important discussion point will be whether or whether the organisation will continue with a plan to expand output by 400,000 barrels per day in January, as part of a steady buildup of supplies as economies throughout the globe begin to recover from pandemic lockdowns. However, given the ambiguity surrounding the new Omicron type and the question of how to react to President Biden’s decision to release oil reserves, it is unclear which direction the oil ministers will take.
“Volatility on the downside,” as Mr. Bronze put it, is what oil executives, and notably those representing Saudi Arabia, which is in charge of the group, are concerned about. This is the possibility that prices may continue to fall following Friday’s plunge, he added.
As a result, analysts predict that the oil authorities will be cautious of the dramatic price crashes that happened in early 2020, when certain futures prices dipped into negative territory, as well as in 2014, when Saudi Arabia briefly backed away from attempting to regulate the markets.
OPEC Plus has played a key role in orchestrating a more than 50 percent increase in oil prices this year, and its members will not want to see those gains eroded in the future.
If the anticipated increase is maintained, it is likely to reduce tensions with the Biden administration, which arranged the release of oil inventories from the United States Strategic Petroleum Reserve in conjunction with smaller movements by other significant oil users earlier this year.
When the effect of the new variation is taken into account, prices have fallen by almost 15 percent since late October, which is likely to have accomplished much of what the White House desired.
Over time, the strategic reserve releases may prove to be a more concerning development for OPEC Plus than the Omicron development. Previous synchronised releases have been very unusual occurrences, occurring only in reaction to supply problems. The most recent occurred in 2011, when civil unrest in Libya caused oil shipments from that nation to be halted.
While nations such as Saudi Arabia and the United Arab Emirates need substantial oil profits in order to support their economies’ diversification away from oil and toward other kinds of energy, high oil prices also promote switching away from oil, resulting in a gradual decline in demand over time.
Jim Krane, an energy scholar at Rice University’s Baker Institute, said that “OPEC and the Saudis used to be able to manipulate the market with confidence in oil’s exclusive hold on transportation.” The emergence of replacements on the periphery is now becoming apparent. “Confidence in the long-term viability of oil is eroding.”