Doing nothing is the best oil producer can do right now

This time, of course, it is much easier to organize a long meeting. Ministers are free to perform their normal duties, with deliberations conducted by videoconferencing, until the Speaker decides they need to be reconvened. Thirty-five years ago, ministers and their delegations were kept away from home by their desks in Geneva hotel suites. Then, like now, they were grappling with a market that was slowly recovering from an unprecedented demand shock – although the trigger was very different.

Right now, the OPEC+ group is doing its best by doing nothing. The meeting is “in session” in name only. Nevertheless, it is proving to be a very successful strategy to support crude oil prices in the face of uncertainty over the effect of the Omicron variant on oil demand.

The ministers convened amid widely held expectations that they would delay January’s planned production increase.

Back in July they decided to add 400,000 barrels to supply each month until they could restore all production they had agreed to cut back in April 2020. But forecasts of the oil market swinging from deficit to surplus by the end of the year had worried OPEC+. , as the world’s five largest oil-consuming countries outside the grouping coordinated the issuance of strategic reserves to reduce inflation. No one was more concerned than Saudi Arabia’s Prince Abdulaziz bin Salman, who has urged a cautious approach to continually ramping up supplies.

To the surprise of many, the group agreed to go ahead with January’s planned production increase. That decision undoubtedly helped ease tensions with the Biden administration in the US. Tensions were triggered by producers’ refusal to make a large increase in production in December and were then intensified by the announcement that the US and other countries would seek emergency reserves. from crude oil. ,

But keeping the meeting officially “in session” has sent a clear warning to oil bears that the producer group will act quickly at the first sign of weakening prices, quelling any appetite for crude.

That move put a floor below crude oil prices, which fell $13 a barrel, or 16%, as the new Covid-19 version emerged two days after Biden announced a stockpile release.

Meanwhile, US gasoline prices have been eased, if only slightly, allowing Biden to quietly claim success for his strategy. But he can’t scream too loudly because prices are still the highest for the time of year since 2012.

The release of Strategic Reserves is still underway, although they are yet to hit the market. The deadline for bids for the initial 32 million barrels of US crude was 6 December, with contracts to be awarded on 14 December. Only then will we know the power of buyers’ hunger. There is no guarantee that they will want all the oil on offer.

Other countries said they would join the US – India, Japan, China, South Korea and the UK – are also yet to release oil from their reserves.

With higher-than-average uncertainty surrounding both oil supply and demand, the producer group did what it could. It successfully reduced producer-consumer tensions by boosting January supply and moved from a schedule of monthly meetings to one of permanent meeting.

That plan to keep the meeting live while actually doing nothing is looking like a masterstroke. Ultimately, the world needs to digest both the impact of the Omicron type and the release of emergency reserves.

Julian Lee is Bloomberg’s oil strategist. Prior to this he worked as a Senior Analyst at the Center for Global Energy Studies.

This story has been published without modification in text from a wire agency feed. Only the title has been changed.