By Barani Krishnan

Investing.com – Crude prices returned to the $80 per barrel mark on Tuesday as producer alliance OPEC+ allowed another output hike in February, vindicating bets by oil longs that Covid’s Omicron variant would not hurt demand for energy any more than other known variants of the virus.

OPEC+ — which groups the 13-member Saudi-led Organization of the Petroleum Exporting Countries with 10 other oil producers steered by Russia — greenlighted at a meeting on Tuesday a 400,000 barrel-per-day output hike for next month, similar to what it had done each month since August.

London-traded, the global benchmark oil exchange, rose 1.5% or $1.16 to $80.14 per barrel by 2:05PM ET (19:05 GMT). The OPEC+ decision resulted in Brent reaching an all-time high of $80.54 at the end of the session.

After hitting an intraday peak of $77.64, a benchmark crude oil price was $77.12 per bar, up 1.4% or $1.04.

In an environment of increasing production, oil prices are likely to be in pressure.

But OPEC+’s action has produced the opposite effect as it demonstrates producers’ confidence in demand going ahead, analysts said.

Global oil producers are reducing record production by 10 million barrels per day. This was after crude prices plunged to an historic low of $20/barrel in April 2020 at the peak of the coronavirus pandemic.

Although oil demand has returned to pre-pandemic levels, and prices have risen to above $85 per barrel in October 2014, OPEC+ is still tightening its belt in supplying the market with at least 4.0m bpd daily production. 

The United States, along with other oil-consuming countries like China and India were upset by this and decided to band together and let loose crude oil from their stocks to reduce inflation caused by soaring fuel prices. 

OPEC+ has stuck to its ‘slowly-slowly’ approach in balancing the market  even as the combination of Omicron fears and crude releases from the so-called Strategic Petroleum Reserves of the consuming countries hammered prices down by as much as 20% in November.

OPEC+ released a Monday pre-meeting market analysis stating that the Omicron variation’s impact on energy demand would be mild and brief.

A Joint Technical Committee report by OPEC+ stated that “this is in addition to a stable economic outlook in both advanced and emerging economies.”

RBC analysts added in a note that though Omicron cases continue to climb in key geographies, “the absence of widespread lockdown restrictions will likely keep near-term demand concerns in check”.