Opec+, led by Saudi Arabia and Russia, is scheduled to meet on Tuesday as oil prices continued to edge higher, despite demand concerns arising from the worldwide increase in Omicron coronavirus infections.
Brent, the global benchmark for two thirds of the world's oil, was up 0.42 per cent to $78.11 per barrel at 5.24pm UAE time on Monday, while West Texas Intermediate, the gauge that tracks US crude, was trading 0.2 per cent higher at $75.36 per barrel.
“Oil prices rose on Monday as the market kicked off 2022 on a positive note, spurred by the global economic recovery from the Covid-19 pandemic slump and producer restraint, even as infections reached record highs worldwide,” said Avtar Sandu, senior manager of commodities at Singapore's Phillip Futures.
Coronavirus infections have been rising worldwide in the past few weeks after the detection of the Omicron variant in South Africa in November. The total cases worldwide currently stand at more than 290.6 million, with deaths exceeding 5.4 million, according to Worldometer, which tracks the pandemic. More than 254.5 million people also recovered from the infection.
Demand for oil has continued to improve as Omicron had only a mild impact. Hospital admissions in the US are lower when compared with earlier waves of the pandemic, according to the US Centres for Disease Control and Prevention data.
Opec also expects a mild impact from Omicron on oil markets and is expected to increase production in February.
“Since the last Opec+ meeting, oil prices have recovered considerably, suggesting market participants seem to be less concerned about the Omicron variant weighing on oil demand,” said Giovanni Staunovo, commodity strategist at UBS.
“With the oil market still in deficit, I expect the group to stick to the plan and increase production by 400,000 barrels per day in February.”
The group is also expected to reiterate that the “meeting remains in session and they stand ready to immediately react if circumstances require it”, he said.
At its last meeting in December, Opec+ stuck to its plans to boost output for January by 400,000 barrels per day despite fears about Omicron.
Production disruptions in Libya and Ecuador, because of maintenance problems and the shutdown of oilfields, are also supporting oil prices.
“We expect oil demand to recover further in 2022, and exceed the level of 2019, but the oil demand recovery will remain uneven by region and oil products,” Mr Staunovo said.
Oil prices rose more than 50 per cent last year as global economies recovered from the pandemic, the result of stimulus measures and rapid vaccination programmes in a number of countries. Opec+ also restrained production, which propped up oil prices last year.
Brent is likely to overshoot $125 a barrel this year and $150 a barrel in 2023, largely because Opec's spare capacity is below market expectations and impedes its ability to respond to high oil prices, according to JPMorgan.
Underinvestment in the sector over the past 18 months caused by the pandemic has hit the output capacity of many producer countries and their ability to respond to recovering oil demand, America's largest lender said in a report last month.
“I think Opec+’s decision is a foregone conclusion and Omicron news and data will remain the major influence on oil sentiment,” said Vandana Hari, founder of Vanda Insights in Singapore, Bloomberg reported.