Omicron variant adds more complications to the market


A decisive OPEC + meeting? (REUTERS)

The aggressive debut of the omicron variant is expected to further complicate matters for the oil market, as the formidable Opec + group meets to talk today.

But that’s not the only issue members of the group, made up of Russian-led countries that are not members of the Saudi-led OPEC and export crude oil, will face when will discuss on Zoom to decide the release policy for January.

Oil prices fell on Tuesday after Moderna chief Stéphane Bancel warned that existing vaccines may be less effective against the new variant than previous strains. And oil futures ended November with the worst monthly drop since the start of the pandemic.

The omicron variant has increased market volatility and fueled fears about demand for crude, as the United States and other economic powers seek lower prices and stability, and many small economies still struggle to bounce back from the depth of the pandemic.

The group has steadily released an additional 400,000 barrels per day each month since the summer after imposing severe production restrictions to cut 10 million barrels per day to stop the drop in demand due to the lockdowns. As the global economy began to recover, the gradual release of oil helped exporters rebuild their balance sheets.

OPEC + still has some 3.8 million bpd of cuts in place. The variant could put pressure on the group to suspend production as new travel restrictions loom.

For now, possible further oil cuts on Thursday could be tolerated by US-led importers who want to see exporters pump more oil to dampen prices and boost economic recovery. But in the long run, the group’s reluctance to increase the supply of crude could intensify an already heated geopolitical impasse.

Throughout the past month, the White House has tried to present Opec + with incentives to increase production, but the administration’s calls have fallen on deaf ears in Riyadh and Moscow.

Will OPEC continue to control oil prices without any challenge?  (REUTERS)

Will OPEC continue to control oil prices without any challenge? (REUTERS)

Next, US President Joe Biden announced that Washington would release 50 million barrels from US strategic national reserves and contacted the other four major importers, China, India, Japan and South Korea, to convince them to do so. the same. Along with the United States, they are the largest importers of rough in the world.

India then announced plans to pump an additional five million barrels of its strategic reserves into the market, while the UK said it would release 1.5 million barrels.

But experts say this incisive diplomacy could stop before forcing prices down.

“Biden’s options aren’t great. He can release oil from the strategic reserve, which he did. It provided marginal help,” said Jim Krane, energy analyst at the University’s Baker Institute. Rice in Houston. The independent.

“The best way to bring prices down is to ask Saudi Arabia to increase production. It’s basically asking the Saudis to cut their wages, and that’s a big demand. The Saudis have so far refused. The US government has therefore decided to play poker with Opec.

The best way to bring prices down is to ask Saudi Arabia to increase production. Essentially, it’s about asking the Saudis to cut their wages

Jim Krane, Energy Analyst at the Baker Institute at Rice University

US lawmakers threatened to roll out the 1890 No Oil Producing and Exporting Cartels Act which would subject Opec and its allies to antitrust laws and designate the organization as an “illegal cartel” exposed to US sanctions if passed. by the Senate. The US State Department has opposed the legislation – known as NOPEC – in the past over fears of diplomatic fallout, which still make it difficult to pass.

But putting the bill back on the table by the administration could be a powerful wake-up call with favorable results.

“This legislation would be a disaster for oil prices and will probably never be enacted, but it poses a serious threat to Saudi interests. If the so-called NOPEC bill looks likely to pass, we might see more cooperation from the Saudis, ”Krane said.

Lobbying efforts led by the United States have shown some form of unity among oil importers as the Biden administration attempted to balance geostrategic power in the energy sector.

But, historically, consecutive US administrations have shown an inability to control oil prices. When the problems in the oil market necessitated intervention by releasing stocks of strategic reserves, the United States chose to work with the 30 industrialized energy consuming countries forming the block of the International Energy Administration, based in Paris.

The allies of the United States, Japan and South Korea, are members of the IEA, but not China and India. The United States has neglected its European allies, who constitute the majority of IEA members, in this oil price crisis, as it remains occupied with rising natural gas prices and less concerned than Asian countries about crude oil price.

All eyes are on Saudi Arabia (REUTERS)

All eyes are on Saudi Arabia (REUTERS)

So, just as the Saudi-led Opec has reached out to Russia and others to build the Opec + group, the Biden administration could lead talks on creating an IEA + bloc of powerful importers. of oil.

If it sees the light of day, this organization could ignite the competition for influence and split the energy market into Cold War bipolarity. And, ironically, the United States and Russia would again be on opposing sides.

But Opec + could react, during Thursday’s meeting, by suspending production increases, which will signal mistrust and an ability to take measures detrimental to American interests.

“OPEC still has cards to play. Over the past year, OPEC has given the world a master class on multilateral unity. The cartel could take an aggressive route – cancel its production increases or even reverse them, ”Kran said.

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