An agreement by OPEC+ to stick to the planned increase in oil output for February has led to a 1.5% rise in oil prices.
Brent crude was up $1.15, or 1.5%, at $80.13 a barrel, its highest since November and US West Texas Intermediate (WTI) crude rose $1 cents, or 1.31%, to $77.09.
OPEC+, comprising of the Organization of the Petroleum Exporting Countries and allies, are sticking with the planned increase for February based on indications that the Omicron coronavirus variant would have only a mild impact on demand.
“The oil market is bullish today as a result of optimism sourced from today’s monthly OPEC+ meeting, which is helping oil prices trade higher,” said Rystad Energy’s head of oil markets, Bjornar Tonhaugen.
OPEC+ agreed to boost oil production by 400,000 barrels per day (bpd) in February. This decision reflects easing concerns about a big surplus in the first quarter, as well as a desire to provide consistent market guidance.
Analysts warn that OPEC+ may have to change its tack if tensions between the West and Russia over Ukraine escalate and impact fuel supplies, or if Iran’s nuclear talks with major powers progress, which would mean the end of oil sanctions against Tehran.
“We think these two events represent major wildcards that could quickly alter the price trajectory and test OPEC’s rapid response mechanism,” RBC analysts said in a note.
Caroline Bain, the chief commodities economist at Capital Economics, said Libya’s production is likely to decline by 500-600,000 bpd in the next few weeks, more than offsetting the planned monthly increase in OPEC+ production.
According to the state oil firm, output will be reduced by 200,000 barrels per day for a week due to maintenance on a main pipeline, adding to disruptions two weeks ago after militia blocked operations at the Sharara and Wafa fields.
Nevertheless, Bain said Capital Economics remains of the view that oil prices will come under downward pressure as OPEC+ continues to raise production in the coming months and demand growth normalizes. Capital Economics predicts that Brent Crude will be just $60 per barrel by the end of 2022.