OPEC and allied oil-producing countries decided Tuesday to pump more oil to the world economy amid hope that travel and demand for fuel will hold up despite the rapid spread of the omicron variant of Covid-19.
The 23-member OPEC+ alliance led by oil cartel member Saudi Arabia and non-member Russia said it would add 400,000 barrels per day in February, sticking with a road map to slowly restore cuts in output made during the depths of the pandemic.
Oil prices rose with the news: U.S. crude traded 1.7% higher on the New York Mercantile Exchange, at $77.32 per barrel, while international benchmark Brent crude was up 1.5%, at $80.28. The decision left few market ripples because it had been broadly expected.
After the first reports about the ultra-contagious omicron variant in late November, oil prices plunged and stocks slid. But prices have since recovered and markets calmed down. Analysts say vehicle traffic and aviation activity suggest that omicron, while it is dominating headlines and raising concerns about hospital capacity, may wind up not drastically reducing demand for fuel.
Oil prices also are being supported because some countries have not been able to keep up with their share of production, limiting supply.
OPEC’s oil production increases are gradually restoring deep reductions made in 2020, when demand for motor and aviation fuel plummeted because of pandemic lockdowns and travel restrictions. At times, OPEC+ hasn’t moved fast enough in raising production for U.S. President Joe Biden, who has urged producing countries to open the taps wider to combat surging gas prices and aid the economic recovery.
The U.S. and other oil-consuming countries on Nov. 23 announced a coordinated release of oil from strategic reserves in an effort to contain rising energy prices that have helped fuel inflation and raised politically sensitive gasoline prices for U.S. drivers. Yet Biden’s move is seen as having only a muted effect on prices.
Oil prices climbed more than 50% last year as many pandemic restrictions eased and as the world learned how to better cope with precautions against the virus. The omicron surge comes as the global economy is still in the process of healing: growth has surpassed pre-pandemic levels in the U.S. but is only expected to do so in Europe in the first months of the year.
A recent decline in U.S. gasoline prices — which are significantly influenced by the price of crude — has steadied at a national average of $3.28 per gallon, down from about $3.40 in mid-November. Drivers face different prices depending on where they live — the average price in California was $4.66 per gallon, while drivers in Wisconsin paid $2.99.