Oil Jumps On OPEC's Decision To Maintain Output Course

Meanwhile, countries scramble to deflect energy crunch impact: File Image/Pixabay

Trepidation over what the Organization of the Petroleum Exporting Countries (OPEC) might or might not do in response to the impending global energy crunch affected trading earlier Monday but resulted in big gains for oil prices when it announced it would stick to an existing pact for a gradual increase in output.

Brent shot above $81 per barrel when it was learned that OPEC would on news that the group would boost output by 400,000 barrels per day (bpd) per month until at least April 2022, thus eliminating 5.8 million bpd of existing production cuts.

Rystad Energy wrote, "The outcome of the OPEC+ meeting was no surprise, but when prices are at above $80 per barrel Brent, this is a level that makes customers uncomfortable and producers happy but cautious."

As for the reasoning behind OPEC's decision to ignore calls for much higher output to combat the energy crunch, a source told media, "We are scared of the fourth wave of corona; no one wants to make any big moves."

Alexander Novak, deputy prime minister of Russia, was more pragmatic in his assessment for OPEC's decision in what he calls a balanced market: "We will be monitoring the situation: as we know, demand usually falls in the fourth quarter."

But the consequences of the supply crunch remains, and on Monday it was reported that Thailand will cap diesel prices at 30 baht ($0.89) per litre until the end of the month to help reduce living costs for consumers; energy minister Supattanapong Punmeechaow said the support will be extended if necessary.

For his part, Ihsan Abdul Jabbar, oil minister for Iraq, said the prospect of oil prices reaching $100 is not sustainable and that his country is working on a program to raise oil production capacity to 8 million barrels.

Also, France was said to be pushing the European Union to reduce its energy dependency as gas prices soar across the continent: "We don't want to be dependent on the supplies coming from foreign [countries]," Bruno Le Maire, that country's finance minister told reporters on Monday.

As for trading over the next few days, Damien Courvalin, head of energy research at Goldman Sachs Group Inc., told Bloomberg television, "Prices are at their highest in seven years and inventories are about to fall to their lowest in 10 years: it sets the stage for another meaningful leg higher here."