How Will OPEC+ and the Oil Market Respond to Omicron?

As yet another COVID-19 strain makes its way across the globe, traders may be wondering whether the price of Oil (CL) is in for a shake-up. The Organization of Petroleum Exporting Countries is meeting today to discuss the way forward amid one of the most volatile Oil markets ever.

Less than a week has passed since the World Health Organization first decided to designate the Omicron variant of the coronavirus as ‘of concern’. In just this short span of time, COVID-19’s newest mutation has increased market volatility the world over. Market watchers may now be growing concerned as Oil is proving to be no exception.

Resource Rollercoaster

Oil has been one of the commodities most affected by the now nearly two-year long COVID-19 epidemic. From a disastrous 2020 to posting its largest cash flow in thirteen years this past October, the global petrol market has been far from boring. However, Oil investors may be in for another shock as the virus continues to affect Oil prices.

Perhaps responding to fears that travel and business restrictions would once again stifle global commerce, Oil had its largest daily drop of the whole pandemic on Friday. Over the course of the trading day on the 26th, the commodity’s price dropped by over 12%. As of this morning, Oil has recovered by over 3.4% from yesterday’s low of below $65 a barrel, but prices are still far below October’s highs. The global benchmark Brent Oil (EB) has fallen by almost 18% since its October 26th high and is currently trading at just above $70.

What Will OPEC+ Decide?

It is in the context of these many ups and downs that OPEC+ is meeting today. Last month, U.S. President Joe Biden requested that the organisation increase production to release upward pressure on prices. It may be hard to remember now as Omicron fills the headlines, but as recently as this autumn, the atmosphere in the market was optimistic as it seemed the world was beginning to leave the pandemic behind and demand for Oil was rising in tandem. In the past month, the United States has already begun to tap into its Strategic Petroleum Reserves to ease the effects of high petrol prices on consumers. American stockpiles grew by over 4 million barrels from the 19th to the 26th of November alone.

The picture looks quite different today. OPEC and its allies will have to consider their next steps with regard to production, and some analysts posit the existence of disagreements between members of the cartel. 

A few months ago, OPEC+ had agreed to raise output by 400,000 barrels to aid with the recovery of the global economy. However, this most recent development in the global health crisis may have member countries questioning the wisdom of this decision in an environment of dropping Oil prices. Others seem eager to keep petroleum production on track to increase despite the prospect of decreased energy demand.

Will Oil Dip Further?

There are several factors in play with regard to fossil fuel prices currently. As Omicron continues to be transmitted, pushing Oil down just as the global economy seemed on the verge of recovery, traders may wish to remain wary of overconfident predictions in such a tumultuous time. 

It may be another few weeks before it is known with any level of certainty how infectious the Omicron strain of COVID-19 is, and thus how many restrictions will need to be put in place to arrest its spread. However, today’s OPEC+ meeting, which began at 10:00 UTC, could give investors and market watchers a preliminary gauge for how some of the world’s most prolific petroleum producers see the outlook for Oil prices. Much is clearly uncertain about where Oil prices will be headed in the near future, but today’s output decision could possibly have a large influence on whether the Commodities rollercoaster will continue.