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Omicron and the Reaction of OPEC - İbrahim Halil Aslan

Let’s firstly explain what happens after the Omicron emerged. Omicron‘s origin has not been known yet, but we know it was discovered firstly in South Africa and reported firstly by South Africa’s doctors. Just after that news, we have heard that the United Kingdom has banned the travel-flight from South Africa. The market perceived this news as a new concern and new uncertainty in the following days. Brent Oil fell about 11 percent in a day when the news had been heard, while WTI dropped around 13 percent in the same day. Then, most countries had taken similar actions to keep the new variant away from their borders as soon as possible. Nevertheless, the new variant, named Omicron, spreads around the whole globe at an unprecedented pace and reveals a fear of being in the same situation as what happened in the first Covid-era. Even Israel became the first country to shut its borders to foreign travelers. Japan followed the same path and decided to take the same action, closing borders to the foreign traveler because of the fear of new variant. Turkey also announced first time six covid cases caused by Omicron. Omicron has been reported in 58 countries, and WHO expects the number to continue growing.

All market traders carefully follow what The World Health Organisation says and offers to countries after Omicron. WTO has explained the effect of Omicron since the time Omicron is heard. On 8 December, The World Health Organization said the highly mutated omicron variant of Covid-19 could change the course of the pandemic. While there exists a risk of changing the course of the pandemic, how it affects oil prices is about curiosity. Therefore, all eyes are on the Organization of the Petroleum Exporting Countries (OPEC). World’s biggest oil producers were met on 2 December with a video conference to evaluate the latest news of the new variant, Omicron, and to discuss how much this new variant impacts energy demand. In this meeting, the biggest anxiety was if this new variant of the coronavirus cuts down on economic recovery. They also discuss the discomfort of the United States and China for high oil prices and the desire for oil prices to go down. Right here, I should open a parenthesis and say that as I specified in my previous writing about the fact that US is likely to release its strategic petroleum reserve to put decreasing pressure on oil prices since CPI is mostly composed of energy, it came true and the US announced that it is to release 50 million barrels from its strategic petroleum reserve. According to the plan announced, 32 million barrels will be used to exchange in the following months, and the remaining 18 million barrels will be sold as an acceleration of determined sale. Before the video conference of OPEC, Joseph McMonigle, Secretary-General of the Riyadh-based International Energy Forum, commented that “I anticipate OPEC+ energy ministers will maintain their current plan of adding more supplies to the market gradually." McMonicle continued, “However, certain unforeseen external factors such as a release of strategic reserves or new lockdowns in Europe may prompt a reassessment of market conditions."

Non-OPEC leader Russia turns out that there would be no need for urgent action on the oil market. As a result of the meeting done on 2 November, OPEC picked the easy way and adhered to its previously agreed program of gradually increasing oil supply in the market. The increase in oil production will be 400.000 barrels per day in January, as decided in the previous months. However, the expression "make immediate adjustments if required” used in the meeting makes some analysts think. This is because this statement can be commented like OPEC is intended to change their announced action according to the latest developments on the oil market, coronavirus and its variants, and the use of strategşc petroleum reserve. It may reconsider its production level, decreasing production if it sees any threat appears even before the next meeting.


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