OPEC+ stuck to its output increase plan on 2 December but with the proviso that it could immediately react to a significant hit to demand from the Omicron Covid variant.
An oil price of cUS$70 (Brent), close to the year-to-date average, approximately balances the fiscal budgets of the largest oil exporters, particularly Russia and Saudi Arabia.
OPEC+ output decisions have effectively moved from being made at a meeting every two months, to at a monthly meeting, to on a daily basis. The credible threat of a quick change in output policy may place a floor on oil prices unless data on Omicron-driven hospitalisation and fatalities or the effectiveness of existing vaccines against Omicron proves far worse than initial indications.
Importer pain not compounded
As it stands, the OPEC+ decision does not compound the pain for net fuel importers in the emerging markets, particularly those also under pressure from high imported food costs. The average oil price is c60% higher in 2021 so far compared with 2020.
A nod to Biden
As it stands, the OPEC+ decision also suits US President Biden, who needs Saudi Arabia and Russia to continue leading the expansion of output, given the political fallout from inflationary pressures in the run up to mid-term elections in November 2022, more than he needs them to respect the human rights terms he couches his foreign policy in or, in the case of Russia, to bend to his wishes on Ukraine or Belarus.
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