Home Business NewsBusiness Why OPEC+ and Omicron matter more to oil prices than the Biden plan

Why OPEC+ and Omicron matter more to oil prices than the Biden plan

by LLB Reporter
2nd Dec 21 11:23 am

Oil prices largely shrugged at President Joe Biden’s release of 50 million barrels of crude from America’s strategic reserve but news of the Omicron variant of COVID-19 is weighing on the black stuff, and that raises the stakes for the latest meeting of OPEC+.

Unlike the White House, the OPEC+ cartel can move oil markets, as its 2020 production cut and then gradual subsequent increases in supply testify. OPEC and Russia are still producing less than they were before the pandemic and the latest oil price wobble will be a test of their plan to gradually increase output by some 400,000 barrels per day each month.

The failure of the Biden plan was hardly a shock. Fifty million barrels a day may sound a lot. But in global terms it is half a day’s demand and America’s entire SPR would meet worldwide oil demand for less than a week.

That puts the onus back on OPEC+, as it contemplates the possible hit to demand should the new viral variant hit consumer confidence and demand for travel, even assuming trips are permitted by government – and the number of restrictions is already growing again.

“COP26 made quite clear the political and public will to move away from hydrocarbon as our prime source of fuel. You can therefore hardly blame Saudi Arabia, Russia and other leading producers for looking to monetise their oil assets while they can still do so,” said AJ Bell Investment Director Russ Mould.

“Equally, Riyadh, Moscow and their allies will not want to overdo it.

“High energy prices are a tax on consumers and a source of margin pressure for many corporations. If oil and gas rocket, there remains the chance that the indebted global economy could wobble under the strain, virus or no virus, just as it did when oil reached $147 a barrel in 2007.

“In addition, alternative, renewable sources are not yet ready to take up all of the slack from oil and gas. Demand for energy could therefore outstrip supply, with the result that hydrocarbon prices could remain firm, or even keep rising – at least unless COVID-19 rears its head again and depresses economic activity and oil demand in the process.

“Unlikely as it may seem, oil and gas companies are listening to the political and public call for a shift to a greener, less carbon-intensive world. The combined capital investment budgets of the seven Western oil majors – BP, Chevron, ConocoPhilips, ENI, ExxonMobil, Shell and TotalEnergies – looks set to drop to a its lowest mark since 2005, as a percentage of sales. In many cases, those budgets include renewable projects, too, so spending on oil production and exploration is by implication lower still.”

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