Jamaicans are being told to brace for continued high prices at the pumps as the Organisation of Petroleum Exporting Countries (OPEC) and its allied oil-producing countries decided Thursday to maintain the amount of oil they pump to the world even as the new Omicron variant casts a shadow of uncertainty over the global economic recovery from the novel coronavirus pandemic.
Officials from OPEC countries, led by Saudi Arabia, and their allies, led by Russia, voted to stick with a pre-Omicron pattern of steady, modest, monthly increases in oil releases - a pace that has frustrated the United States and other oil-consuming nations as gasoline prices rise.
The OPEC+ alliance approved an increase in production of 400,000 barrels per day for the month of January.
President of the Jamaica Gasoline Retailers Association (JGRA) Dianne Parram, reacting to the decision, said OPEC+ only acted because the United States issued the 50 million barrels of oil from its special reserves to ease supply and bring down prices, but added that, despite the move "high prices will continue to affect us".
Pump prices in Jamaica are up 44 per cent since the start of the year, driven not only by higher cost for the fuel but also the exchange rate. The Jamaican dollar has depreciated 9.5 per cent against the US currency since the start of the year.
Commenting on the proposed increase in production by OPEC+ countries in January, Parram said it will take a while before we see an impact on prices. "The results will be slow in coming. You have to look at the impact of what OPEC has done as well as the action of the United States. It's the combination of both. So we have global implications and national challenges."
"Demand is constant. It is the supply which is constrained. That was the issue. Now that supplies are increased, it will take a while for prices to fall. Both actions will act in concert."
However, Rystad Energy - a Norway-based oil research firm - said, in an Associated Press story on the OPEC+ decision, that how the world reacts to the fast-mutating Omicron variant that emerged late last week could also help determine what happens to oil prices. In a worst-case scenario, lockdowns triggered by Omicron could cut oil demand by nearly three million barrels per day in early 2022, according to projections by Rystad Energy.
Positive news about drugs to treat the variant or the vaccines' effectiveness against it could improve that outlook. 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 US 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 US$78 a barrel a week ago and was trading at about US$66 a barrel Thursday. International benchmark Brent crude followed a similar path, falling from US$79 a barrel a week ago to about US$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 US 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.
With rising gas prices putting him under political pressure at home, President Joe Biden last week responded to OPEC's refusal to increase supplies more quickly by announcing the US and other nations would release tens of millions of barrels of oil from their strategic reserves, boosting supplies and temporarily lowering prices. But gasoline prices in the US barely moved. OPEC+ will meet again January 4.
