Oil extends gains after Opec+ takes flexible stance on supply

SINGAPORE (BLOOMBERG) – Oil rose in Asian trading after the Opec+ alliance decided to keep restoring supply, but also said it could revisit the decision at any moment due to high levels of uncertainty in the market.

West Texas Intermediate advanced above US$67 a barrel after closing up 1.4 per cent on Thursday (Dec 2) following the decision by the producer group. The cartel agreed to add 400,000 barrels a day of crude to global markets in January in a move that should please major-consuming nations, especially the United States.

However, it also left the door open to changing the plan at short notice. That’s an unusual step that underscores the difficulty in assessing the supply-demand balance over the short term due to the Omicron virus variant and the White House-led release of national reserves.

Crude has dropped sharply since late October on growing signs major consuming nations would tap their reserves, the emergence of the new virus variant and a more hawkish Federal Reserve. Some analysts think the declines have been excessive, with Goldman Sachs Group saying prices have “far overshot” the impact of Omicron and Bank of America sticking to its US$85-a-barrel forecast in 2022.

The Opec+ decision could suggest it’s not all that worried about the demand impact from omicron, Morgan Stanley analysts led by Martijn Rats said in a note. However, it also could also be evidence of a more cooperative stance from Opec toward the US, they said.

Prior to the meeting, Opec+ ministers indicated they were concerned about the impact of Omicron on oil demand, but were struggling to figure out how serious the new strain would become. The alliance will now effectively keep its monthly meeting open to enable it to quickly respond to changes in the market.

That was a “genius move,” Energy Aspects chief oil analyst Amrita Sen said in a Bloomberg TV interview. By keeping the meeting open throughout the month, the group can adjust its output if demand falls, effectively putting a floor under prices, she said.

Brent’s prompt timespread was 35 cents a barrel in backwardation, a bullish structure where near-term prices are higher than those further out, on Thursday. That’s an improvement from 30 cents the day before, but is down from US$1.30 a week earlier.