Oil prices rose above $81 per barrel yesterday, consolidating gains on both major benchmarks despite softening demand and OPEC+ opting to maintain its agreed output target rise for February.
Brent Crude rose 1.3 per cent to $81.04 per barrel, while WTI Crude increased by 1.25 per cent to $77.95.
The organisation met yesterday, and decided to stick to previously agreed plans to add another 400,000 barrels per day of supply in February, as it has done for each month since August.
Craig Erlam, senior market analyst at OANDA believes the announcement from OPEC+ alongside the recovering oil prices reflect increased optimism in the market about Omicron variant.
He said: “The announcement from OPEC+ on Tuesday appeared to be in line with what markets had positioned for, with the group optimistic about demand despite near-term challenges of omicron. Oil prices have recovered since the initial shock and are continuing to rise as optimism around the outlook improves. But with prices now not too far from their previous highs, they may soon start to see more resistance.”
While demand has dipped during the current pandemic wave, investors appear to believe key factors such as air travel demand will return this year.
OPEC+ remains bullish over oil demand recovering this year, with research from Imperial College London and Edinburgh University last month suggesting the new variant is milder than Delta.
However, demand has decreased in the US, with gasoline inventories rising by over 10m barrels, while stocks of distillates rose by 4.4m barrels.
However, gasoline inventories jumped by more than 10 million barrels, and stocks of distillates rose by 4.4 million barrels.
The Omicron situation remains volatile, as the UK has been dealing with domestic record cases of over 200,000, with hospitalisations steadily rising in recent weeks.
Meanwhile, the US reported nearly one million new coronavirus infections on Monday, the highest daily tally of any country in the world and nearly double the previous US peak set a week earlier.
In a note from analysts, Barclays forecast that OPEC+ will likely struggle to reach its raised output target, as members including Nigeria, Angola and Libya face difficulties ramping up production.
This outlook was shared by UBS, which argued that the failure to reach output targets combined with reduced Omicron fears would maintain oil prices.
Oil exploration analyst Henri Patricot said: “Supply disruptions across different countries (Libya and Nigeria) have also been supportive and falling crude and oil products inventories have contributed to the positive momentum.”
Barclays expects Brent oil prices to average $80 a barrel in 2022, around $6 below the three-year-highs recorded last October after multiple market rallies.
It said: “OPEC+ has adopted the path of least (political) resistance, as it continues to stay the course on increasing output targets, but actual incremental supplies are likely to be much smaller, similar to the demand effect from Omicron.”