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Oil prices drop as OPEC+ agrees to stick to output plan

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  • CL=F
  • BZ=F
In this photo illustration, an OPEC logo seen displayed on a smartphone with stock market prices in the background. (Photo by Omar Marques / SOPA Images/Sipa USA)
Prices plunged across the board after the news of the group's plan to gradually increase oil production by 400,000 barrels per day. Photo by Omar Marques / SOPA Images/Sipa USA

Oil prices fell to their lowest point since mid-August as the Organization of the Petroleum Exporting Countries and its allies (OPEC+) agreed to hold firm on the group's plans for oil production.

The group converged at 1pm GMT to discuss the potential knock to fuel demand as the world assesses what potential damage the Omicron variant of COVID-19 could do. The meeting confirmed plans to add another 400,000 bpd of supply for January 2022.

Crude (CZ=F) futures were trading at $67.32, 2.3% lower than the previous session by mid-afternoon.

Futures contracts for Brent Crude (BZ=F) also crashed to around 1.5% lower.

Ministers from Saudi Arabia and Iraq had earlier indicated the group would sustain that output policy. Russia also said it believed there is no need for urgent action on the oil market. 

Producers have previously said they did not want to hamper a fragile energy industry recovery with oversupply.

Analysts also noted that sustaining the current policy would look bullish for expectations of economic recovery despite Omicron. 

Peter McNally of Third Bridge said: “Were OPEC+ to add another 400,000 bpd of supply for January 2022, it would be a signal that these countries expect the recovery to continue as previously planned.

“But this year began with Saudi Arabia unilaterally slashing production by 1 million bpd as the winter wave of COVID dashed the pace of recovery.

“This week’s meeting of OPEC+ ministers is shaping up to be one of the most significant since the pandemic recovery demand recovery began, and the key signal will be how much more oil will be added to supply to start the new year."

Other analysts had questioned whether the group could look to pause increasing production to reassess the market due to price volatility and fears of the Omicron variant bringing countries to a standstill once again. 

Read more: European stock markets slump as Omicron continues to dampen sentiment

Last year, OPEC+ made record output cuts of 10 million bpd, equivalent to about 10% of global supply. It has scaled those back so cuts still in place now stand at about 3.8 million bpd.

And production is still slow. A Reuters poll published earlier this week found that OPEC producers had not hit the top end of their allowed oil allowance of 254,000 bpd in November. 

Watch: What is inflation and why is it important?