U.S. Pump Prices Unlikely to Ease as Oil-Supplying Nations Approve Modest Supply Increase

Officials from oil-supplying countries voted Thursday to approve a pattern of modest monthly increases in the amount of oil released—a move signaling that inflated gas pump prices in the U.S. are unlikely to ease anytime soon as fuel demand continues to outpace availability from an industry that saw severe production.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies took part in a meeting where they decided to approve a production increase of 400,000 barrels per day for the month of January, the Associated Press reported. But the Omicron variant's emergence has brought uncertainty to the future of gas prices and supply nearly two years into a pandemic that has rocked the industry.

Countries have already enacted strict travel restrictions since the new strain was designated as a variant of concern by the World Health Organization (WHO) last week. If the variant triggers lockdowns, oil demand could be cut by nearly 3 million barrels per day in the early part of 2022, according to projections by Rystad Energy.

Frustrated by OPEC's gradual supply increase plan and growing outcry about rising gas prices, President Joe Biden announced last week that that the U.S. and other nations would tap into their strategic oil reserves and release tens of millions of oil barrels in the hopes of upping supply and curbing price increases.

Despite OPEC's decision and the possible connotations of the Omicron variant, White House Press Secretary Jen Psaki said Thursday that there were currently no plans to delay the strategic reserve releases.

"We welcome the decision today to continue the 400,000 barrels-per-day increase," Psaki said. "We believe this should help facilitate the global economic recovery."

For more reporting from the Associated Press, see below.

Gas Prices Unlikely to Lower
OPEC and allied oil-producing countries meet Thursday, Dec. 2, 2021 with uncertainty over the Omicron variant's future impact on the global economic recovery hanging over their decision on how much oil to pump to a world that is paying more for gasoline. Above, gasoline prices are displayed at a station in Huntingdon Valley, Pa., Wednesday, Nov. 17, 2021. Matt Rourke/AP Photo

Positive news about drugs to treat the variant or the vaccines' effectiveness against it could improve the outlook on oil demand cuts. But even with positive news, a decrease in oil demand is likely because "the distribution of these remedies may not actually reach all markets with extreme immediacy, which would still necessitate the lockdowns in much of the developing world," said Louise Dickson, senior oil markets analyst for Rystad.

The price of a barrel of U.S. benchmark crude fell with news of the variant and then fell further as OPEC+ revealed it wasn't going to curtail production. It was about $78 a barrel a week ago and was trading at about $66 a barrel Thursday. International benchmark Brent crude followed a similar path, falling from $79 a barrel a week ago to about $69 on Thursday.

The decision by OPEC+ to stay the course sends a signal that "the group does what it says and that they will continue their policy on their own terms," Dickson said. "It also really signals that OPEC+ needs a bit more time to really dig into the numbers on the Omicron variant."

Saudi Energy Minister Abdulaziz bin Salman earlier this week played down any impact the little-understood variant would have on oil demand, telling the kingdom's Asharq al-Awsat newspaper: "We are not worried."

But OPEC ministers briefly postponed one of their meetings this week, hoping for more insight into whether the variant is likely to push the world back toward pandemic lockdowns or leave markets relatively unscathed.

Some analysts had predicted that the OPEC+ alliance—made up of OPEC members and allied non-members like Russia—would act cautiously Thursday, pending more clarity from medical experts on the new variant.

Before Omicron's appearance, the OPEC+ meeting had been shaping up as a potentially fraught moment in a growing dispute between oil-supplying nations and oil-consuming ones, as the global economy rebounds from the worst of the pandemic downturn and demand for oil surged.

Angering the U.S. and its allies, OPEC+ has stuck to a plan to open the petroleum taps bit by bit—even as oil prices surged to seven-year highs—until deep production cuts made during the depths of the pandemic are restored.

Biden sent senior energy adviser Amos Hochstein to the United Arab Emirates and Saudi Arabia this week to soothe relations, address energy prices and talk about working together in transitioning to cleaner energy. Hochstein met with the Saudi energy minister Tuesday.

OPEC+ will meet again Jan. 4.

Oil Prices
Officials from oil-supplying countries voted Thursday to approve a pattern of modest monthly increases in the amount of oil released, a pace set before the emergence of the Omicron variant that has frustrated the U.S. and other countries. Fuel trucks line up in front of storage tanks at the North Jiddah bulk plant, an Aramco oil facility, in Jiddah, Saudi Arabia, on March 21, 2021. Amr Nabil/AP Photo