Crude Oil Higher; OPEC+ Ready to Act if Demand Weakens

© Reuters.

By Peter Nurse — Oil prices rose Friday as traders reacted with relief to the news that OPEC+ was prepared to act and potentially quickly reduce output if the omicron variant caused a dramatic drop in fuel demand.

By 8:55 AM ET (1355 GMT), futures traded 3.1% higher at $68.53 a barrel, while the contract rose 3.1% to $71.84.

U.S. Gasoline RBOB Futures were up 2.1% at $2.0088 a gallon.

The Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, decided on Thursday to go ahead with its planned January oil output rise of 400,000 barrels per day.

This surprised the market given the growth of Covid cases caused by the newly discovered Omicron variant had resulted in a number of countries curbing international travel.

However, the group followed up by adding they could meet again before the next scheduled meeting on Jan. 4 if demand suffered from measures to contain the spread of the new variant. 

“The decision by the group appears to be an attempt to buy themselves more time,” said analysts at ING, in a note. “There is still plenty of uncertainty around what the full impact from omicron will be and so deferring a potential decision until there is more clarity is likely the best course of action.”

Crude markets have seen volatile trading all week as traders try to digest the emergence of the Omicron variant and the potential demand it could do to fuel demand as countries put in place new restrictions to try and combat its spread.

The Biden administration announced new rules late Thursday, to take effect on Monday, requiring international air travelers arriving in the United States to obtain a negative Covid-19 test within one day of travel.

Adding to the positive news Friday was the news that the U.S. labor market lost momentum significantly in November, with rising by only 210,000 through the middle of the month, down from 546,000 in October.

This hit the U.S. dollar, to the benefit of commodities denominated in the greenback, as the slowdown in the jobs market was seen lessening the chances of an early interest rate hike from the U.S. Federal Reserve.

“There is still plenty of uncertainty in the near term with regards to price direction and as a result, the market is likely to remain volatile,” added ING. 

Elsewhere, the latest round of indirect U.S.-Iranian talks on reviving the 2015 Iran nuclear deal is set to end later Friday, with the aim of resuming next week, while the ‘ rig count and will round out the week.


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