Oil climbs above $80 as OPEC+ agrees output increase

LONDON: Oil prices rose 2 per cent on Tuesday as OPEC+ producers agreed to stick with their planned increase for February based on indications that Omicron would have only a mild impact on demand.

Brent crude was up $1.50, or almost 2 per cent, at $80.48 a barrel by 1450 GMT and U.S. West Texas Intermediate (WTI) crude rose by $1.48, or 2 per cent, to $77.56.

“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.

Four OPEC+ sources told Reuters that the group agreed in their meeting on Tuesday to add 400,000 barrels per day (bpd) to output in February because it expects the Omicron variant to have short-lived impact on demand.

“Though Omicron cases continue to climb in key geographies, the absence of widespread lockdown restrictions will likely keep near-term demand concerns in check,” RBC analysts said in a note.

Britain’s vaccine minister said people being hospitalised with COVID-19 in the United Kingdom were generally showing less severe symptoms than previously.

French Finance Minister Bruno Le Maire said that while some sectors were being disrupted by the surge of the fast-spreading Omicron variant, there was no risk of it “paralysing” the economy and stuck to a forecast of 4 per cent growth for France’s GDP in 2022.

Global manufacturing activity remained strong in December, suggesting that Omicron’s impact on output had been subdued.

However, analysts warned that OPEC+ may have to change tack if tension between the West and Russia over Ukraine flares up and hits fuel supplies, or Iran’s nuclear talks with major powers make progress, which would lead to an end to oil sanctions on 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.