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The oil producers’ group OPEC+ will likely take a cautious stance when deciding this coming week whether to go ahead with planned output increases after the emergence of a new coronavirus variant sent crude prices tumbling, according to Vitol Group.
There are signs that demand may be weakening in some markets going in to the winter months in Asia and Europe, said Mike Muller, the head of the Asia unit at Vitol, the world’s biggest independent oil trader. The new coronavirus variant will probably lead to more flight cancellations this week, he said.
U.S. crude plunged more than 10% Friday, dropping below $70 for the first time since September, and Brent had its seventh-steepest drop on record as news of the omicron variant spooked traders amid light trading after the American Thanksgiving holiday. OPEC+ was already voicing concern over excess supply after the U.S. and others announced plans to release oil from strategic reserves.
“OPEC+ have erred on the side of caution,” Muller said on a weekly webinar by Dubai consultancy Gulf Intelligence. “Post facto they’ve proven to be right. It is likely they will take into account these fundamentals and the possibility of a demand hit over the winter months.”
The Organization of Petroleum Exporting Countries and partners like Russia will meet this coming week to consider whether to enact a planned 400,000 barrel-a-day production increase. The group has been slowly sending more oil to global markets after slashing production last year at the onset of the pandemic. The group, which will be discussing January production, can pause the monthly increases to account for fluctuations in demand and some members favor that approach.
“The market was rattled by fear of the unknown,” Muller said of last week’s rout, adding that he thought the drop was excessive given not enough is known about the new Covid strain.
