The crash in oil prices thanks to the new variant of Covid has forced the OPEC+ group (which includes Russia) to delay technical meetings that were to have assessed the state of the global oil market ahead of a formal online decision on whether to cut a further 400,000 barrels a day from its global production cap.
Oil prices crashed (as did other financial markets) on Friday by more than 10%, their largest one-day drop since April 2020, as the new variant spooked investors and added to concerns that a supply surplus could emerge rapidly in the first three months of 2022.
Friday’s slide was exacerbated by low liquidity due to the US Thanksgiving holiday season.
OPEC, media reports said, now wants a couple of days to assess the market movement of oil prices – both Brent and West Texas Intermediate – ahead of a meeting to assess the size of the production cap.
Some analysts reckon OPEC+ could very well postpone a decision till early January because of the high level of uncertainty.
Before Friday slump, OPEC had already forecast the surplus would rise steeply after the United States and other major consumers decided to released oil stocks to help halt the rise in global prices.
Reuters reported that OPEC+ has move its usual joint technical committee meeting to Wednesday from today (Monday). OPEC will hold a meeting the same day.
A joint ministerial monitoring committee will meet on Thursday instead of Tuesday and the OPEC+ group will also meet the same day, when a policy decision will likely be announced.
“We need more time to understand what this new variant is and if we need to overreact or not,” one OPEC+ Reuters reported one source as explaining the delays.
OPEC+ has been releasing 400,000 barrels a day (bpd) of oil each month while winding down its record cuts from last year, when it cut production by as much as 10 million bpd to address lower demand caused by the virus lockdowns.
OPEC+ has 3.8 million bpd of cuts still in place and some analysts have suggested the group could very well pause reductions in the size of the cap until it can assess the likely impact on demand from new lockdowns to contain the new Covid variant.
It is already clear that international air travel is going to be restricted for an unknown period of time, meaning a lower or non-existent rise in demand for jet fuel (and for oil) that was predicted in early 2022 when more countries (such as Australia) re-opened their borders.
