OPEC+ makes perfectly correct diagnosis of Omicron impact on oil market

In a period, full of uncertainties OPEC+ (23 countries, of which the 13 OPEC members) is bringing some much-needed stability and predictability with its roadmap adopted in July 2021. This roadmap provides for a monthly increase in OPEC+ oil production of 400,000 barrels per day (b/d). Since August 2021 this rise has been confirmed every month and it will be the case once more in February 2022.

Francis Perrin pointed out that this stability is welcomed by the oil markets.

On January 4 the price of North Sea Brent reached $80 per barrel for the first time since 25 November 2021, just before Omicron appeared on the world scene. OPEC+ understood rapidly that this new variant would not have a strong and lasting impact on the oil markets and prices and this diagnosis was perfectly correct. World oil demand could increase by between 3.3 million b/d and 4.15 million b/d in 2022 according to various projections (the first one comes from the International Energy Agency and the second one from OPEC), which is interesting for the producers. According to OPEC world oil demand would reach 100,8 million b/d in 2022, which would be a little higher than pre-pandemic levels (2019).

As far as OPEC+ strategy is concerned, so far so good, added Perrin, noting that still some caution is required in 2022.

The COVID-19 pandemic remains a threat for the world economy; the world oil market is now in a state of surplus (world oil supply is exceeding demand), which was not the case in 2021; and, even if negotiations are very difficult, one cannot totally rule out the scenario of an agreement between the United States and Iran on this country’s nuclear program, which would open the way to much higher oil production and exports from Iran. As OPEC’s Secretary General, Mohammad Sanusi Barkindo, rightly said, there is a need for OPEC+ « to remain highly nimble and adaptable to the constantly changing situation ». Since April 2020 OPEC+ has proven that it has this capacity and this behavior generated a lot of benefits for these 23 countries. It is very likely that OPEC+ will go on this way in 2022.