The Opec cartel and its allies have agreed to pump more barrels of oil from January, but left the door open to putting the brakes on production should the Omicron variant lead to further restrictions on travel and trade.
The global price of crude briefly fell to $66 (£49.60) on Thursday, its lowest level since mid-August, after ministers from some the world’s biggest oil producing countries agreed to go ahead with a plan to increase production by 400,000 barrels a day in the new year.
The oil price climbed back towards $70 a barrel after Opec+ agreed the meeting would not formally close. The unusual move was so the cartel could “continue to monitor the market closely”, pending any new developments, and make “immediate adjustments” rather than wait for the next meeting on 4 January.
The move is likely to cap global oil prices at around their current level, well below the three-year highs of $86 a barrel reached in October, and pile pressure on fuel retailers to pass the savings on to hard-hit motorists.
The cartel’s decision to leave its oil production policy unchanged for now may suggest that Opec+ is banking on new travel restrictions being short-lived if existing vaccines prove effective against the Omicron variant of Covid-19, or if its symptoms are milder than earlier variants of the virus.
But if the situation worsens, the oil alliance would be able to bring in immediate cuts to its planned production in order to shore up prices on the global oil market.
Oil prices fell more than $10 a barrel since last Thursday, when news of Omicron first rattled markets.
Louise Dickson, a senior oil markets analyst at Rystad Energy: “The Omicron variant has sobered up markets during the last few days, halting the oil demand recovery enthusiasm and sending traders scrambling to limit risk in their portfolios.”
The cooling of the oil market is likely to have come as a relief to major economies, which fear rising prices will fuel a prolonged period of inflation. It is also likely to bring some respite to motorists in the US and across Europe who have faced steadily increasing petrol prices at the same time as higher home energy bills.
In the UK, the slump in oil prices is also likely to pile pressure on fuel retailers to cut pump prices, which have reached record highs in recent weeks.
The motoring group RAC has accused large retailers of profiteering at the expense of drivers by using rising markets as an excuse to inflate the price of petrol and diesel and failing to drop them when markets recede. A litre of petrol reached a record h 144.9p last month, while diesel climbed to 148.84p.
Simon Williams, a spokesperson for the RAC, said the biggest retailers, have “taken advantage of their customers by collecting bigger profits on every litre they sell than they traditionally do”.
Goldman Sachs said the Opec+ decision to leave the door open for a cut “assuages tensions with the US” after fears the rising oil price could inflate costs across the economy prompted the Biden administration to order the release of 50m barrels from the country’s strategic reserves to help cool the market.
Some traders had hoped that the Opec+ cartel would abandon its policy to gradually increase production after the discovery of the Omicron variant led to new travel restrictions, which could dent the global demand for transport fuels.
The lower prices would also send a signal to US oil companies to “adopt cautious spending plans for 2022” rather than embolden “aggressive growth plans” that could eat into the cartel’s share of the global market, Goldman Sachs added.