Olesya Astakhova and Ahmad Ghaddar by Alex Lawler

LONDON, (Reuters) – OPEC+’s plan to increase oil production for February this week reflects a lessening concern about a large surplus in the first quarter and a desire to give consistent guidance to market participants, analysts and sources said.

Producer group that includes Russia and the Organization of the Petroleum Exporting Countries, reached an agreement Tuesday to boost its production target by 400,000 barrels/day (bpd) for February. (Graphic: Oil market balance in 2022 – January 2022, https://graphics.reuters.com/OIL-OPEC/klvykqgezvg/chart.png)

USA has called on the group for more oil to aid the recovery of the world economy from the pandemic. OPEC+ however stated that the market does not need more oil.

Ministers and officials discussed internal OPEC+ data that was seen by Reuters before Tuesday’s meeting. It showed a surplus supply of 800,000. bpd for January and 1.3 Million bpd for February.

This is a smaller surplus than was initially expected. December’s OPEC+ data had indicated that January’s surplus was 2 million bpd. February’s figure showed that it rose to 3 million bpd. It is now more difficult to increase the supply.

A OPEC+ delegation stated that “the picture has improved” referring to quarter-end market outlook. “Stocks have fallen.”

According to other OPEC+ delegates, the revisions are partly due to OPEC+’s opinion that Omicron coronavirus is unlikely to have a large impact on demand. Also, OPEC+ believes that producers won’t be able to raise output as a result of capacity limitations. This will lead to a decrease in actual supply.

Omicron’s moderate impact seems to be a consensus among investors. Oil prices rose to $80 per barrel on Monday, nearly back at the Nov. 26 level when Omicron was reported. That sparked a drop of more than 10% in oil prices.

The Omicron threat remains a risk. Bjornar Tonhaugen from Rystad Energie stated that instead of a more severe lockdown, the market balances will be somewhat tighter for January and Februari and support oil prices.

Alexander Novak (Russian Deputy Prime Minister) spoke by telephone to Rossiya-24 TV station on Tuesday, after OPEC+ made its decision. Novak stated that they believed there were still uncertainties in the future regarding Omicron’s spread.

“However, observations and analyses show that, in spite of high levels of contagions and the need for hospitalizations, this doesn’t have any effect on demand.” he stated.

Commerzbank analyst Barbara Lambrecht (DE:), warned that sentiments can quickly turn, citing Omicron’s prospect leading to tighter mobility restrictions. However, she stated: “Everything appears to be going smoothly for OPEC+ right now.”

Sources within OPEC+ said that the group was also keen to adhere to market guidance – something Novak, the head of Moscow’s OPEC+ delegation, had stressed in December.

The formal talks, which started at 1230 GMT, were finished in under two hours – a short period according to OPEC+ standards – and were described by delegates as straightforward and free from any issues.

A source from OPEC+ stated, “We need stability.” “I am glad that we had a positive start to the new year.”