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.
No surprises are expected, OPEC+ is likely to ratify another 400,000-bpd increase in production targets for February, but we may be in for a repeat of the group’s masterstroke from December - keeping the door open to change course until the next meeting in February should market conditions worsen.
No wonder OPEC+ has grown confident that the market can take further increases in supply. Brent prices have recovered close to $80 after dropping below $70 in early December and real-time transportation data globally suggests there has not been any significant impact on oil demand thus far from Omicron.
Yesterday’s technical OPEC+ committee presentation of a less over-supplied outlook for the oil market in 2022 against its assessment last month seems to have pleased the bulls, and traders seem to be hanging onto the news, adding due price premiums.
When it comes to the ministerial meeting itself, we would expect limited market movements if this afternoon’s quite expected decision to raise production occurs.
What matters to the market and prices at the moment is the global picture, so we may see more action when we have more clarity over global production in the coming months.
Ongoing outages in Libya, struggling production recovery in Nigeria, and reduced expectations for Russian production capacity add bullish weight to the scale from the supply side.
All the while, for now the Omicron risk remains exactly that, a risk. Instead of an outright deeper lockdown impact, market balances will remain somewhat tight for January and February and keep oil prices supported, especially with supply side concerns and a disciplined OPEC+.
Only a radical decision from today’s OPEC+ meeting seems able to surprise the market.
It will be key for the month’s price volatility to watch whether OPEC+ ministers will opt to keep the meeting “in session” and leave the door open to reconvene before the February meeting to revise the decision based on market conditions, mirroring the unorthodox but tactical move introduced at the previous get-together.
Bjørnar Tonhaugen is the head of oil markets at Rystad Energy.