Oil rises 1.5% as Opec+ agrees to planned output increase

[BENGALURU] Oil prices rose 1.5 per cent on Tuesday as Opec+ producers agreed to stick with their planned increase for February based on indications that the Omicron coronavirus variant would have only a mild impact on demand.

Brent crude was up US$1.15, or 1.5 per cent, at US$80.13 a barrel, its highest since November, by 1.33 pm EST (1833 GMT) and US West Texas Intermediate (WTI) crude rose US$1, or 1.31 per cent, to US$77.09.

"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+, comprising of the Organization of the Petroleum Exporting Countries and allies, agreed to stick to its planned increase of 400,000 barrels per day (bpd) in oil output in February.

Its decision reflects easing concern of a big surplus in the first quarter, as well as a wish to provide consistent guidance to the market.

"It appears that the market is making the bet that Omicron is the beginning of the end of Covid-19," said Scott Shelton, an energy specialist at United ICAP.

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 Omicron's impact on output had been subdued.

However, analysts warned Opec+ may have to change tack if tension between the West and Russia over Ukraine flares up and hits fuel supplies, or if 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 in a note.

Libyan output is likely to be about 500-600,000 bpd lower in the coming weeks, more than offseting the planned monthly increase in Opec+ production, chief commodities economist at Capital Economics Caroline Bain said.

Libya's state oil firm said on Saturday oil output would be reduced by 200,000 bpd 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 oilfields.

However, Bain said Capital Economics remained of the view that as Opec+ continues to raise production in the coming months and demand growth normalises, oil prices will come under downward pressure. Capital Economics' year end-2022 forecast for Brent crude is just $60 per barrel.

Both benchmarks saw some volatility in trading earlier in the day after Minneapolis Federal Reserve Bank President Neel Kashkari said he expects the US central bank to need to raise interest rates two times this year, reversing his long-held view that rates will need to stay at zero until at least 2024.

European gas prices also soared more than 30 per cent on Tuesday after low supplies from Russia reignited concerns about an energy crunch as colder weather approaches.

Higher prices for the fuel boosts oil demand as utilities switch to burning crude, rather than natural gas.

REUTERS