Oil prices increased on Thursday ahead of OPEC’s last meeting this year, in which it must decide whether to modify its current strategy of gradually increasing its production. The higher price is influenced by the omicron variant and investors’ adjusting their positions ahead of the reunion.
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As reported by Reuters, Brent crude futures went from $1.24 to $70.11 by 0748 GMT, having tailed off 0.5% in the previous session. Likewise, U.S. West Texas Intermediate (WTI) crude futures jumped $1.13 to $66.70 a barrel, after a 0.9% fall on Wednesday.
Tsuyoshi Ueno, senior economist at NLI Research Institute, said: “Investors unwound their positions ahead of the OPEC+ decision as oil prices have declined so fast and so much over the past week.”
Last Friday, while stocks fell due to news of new omicron cases, oil prices followed the same trend due to fear of a harsh impact on mobility –it fell about 12% that day. As a consequence, the monthly drop was higher than 16% for Brent –a benchmark in Europe– and 21% for U.S. crude West Texas Intermediate (WTI).
Ueno added, “Market will be watching closely the producer group's decision as well as comments from some of key members after the meeting to suggest their future policy.”
Oil prices are still well above from a year ago and barrel price is higher than before Covid. In fact, the annual “rally” is close to 40%. A Brent barrel is trading at $71 and the WTI is close to $69.
In this context, the OPEC countries and their allies –including Russia– are once again setting the course for the price. Crude oil has started December with increases in anticipation of OPEC+ reducing production levels due to fear of new confinements and the ensuing drop in demand.
Until now, the main oil-exporting countries had agreed to increase their production volume by 400,000 barrels a day –still lower than before the pandemic. When countries closed their borders, the oil demand plummeted and so did the price while OPEC slashed its supply to make up for the losses.
Countries decide on a higher or lower volume depending on the profitability –this depends on the type of crude and its cost of production. As a result, some countries choose not to produce oil a low price does not offset the costs.