OPEC+ made the best possible move under the circumstances by keeping all options open on near-term output. Image Credit: AP

New York: Oil extended gains in Asian trading after the OPEC+ alliance decided to keep restoring supply, but also said it could revisit the decision at any moment due to high levels of uncertainty in the market.

West Texas Intermediate climbed around 2 per cent toward $68 a barrel after closing higher on Thursday following the decision by the producer group. OPEC agreed to add 400,000 barrels a day of crude to global markets in January in a move that should please major-consuming nations, especially the US.

However, it also left the door open to changing the plan at short notice. That's an unusual step that underscores the difficulty in assessing the supply-demand balance over the short term due to the Omicron virus variant and the US White House-led release of national reserves.

Crude has dropped sharply since late October on growing signs major consuming nations would tap their reserves, the emergence of the new virus variant and a more hawkish Federal Reserve. Some analysts think the declines have been excessive, with Goldman Sachs Group Inc. saying prices have "far overshot" the impact of Omicron and Bank of America sticking to its $85-a-barrel forecast in 2022.

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Favourable response

"While OPEC+ surprised participants by sticking to its output plan, the market appears to have taken comfort in the fact that it's willing to reconvene and adjust production if necessary," said Warren Patterson, head of commodities strategy at ING Groep NV. "This decision will buy the group more time to get a better assessment of the impact of the Omicron variant, while at the same time keeping the US happy."

Prior to the meeting, OPEC+ ministers indicated they were concerned about the impact of Omicron on oil demand, but were struggling to figure out how serious the new strain would become. The alliance will now effectively keep its monthly meeting open to enable it to quickly respond to changes in the market.

"This may turn out to be the cleverest, even if unintentional, jawboning by OPEC+," said Vandana Hari, founder of Vanda Insights in Singapore. "The market may take a break from its panicky sell-off if it sees that OPEC+ is not ready to factor in the worst-case scenario until it has more data and information on Omicron."

Brent's prompt timespread was 39 cents a barrel in backwardation, a bullish structure where near-term prices are higher than those further out. That's an improvement from 30 cents on Wednesday, but is down from $1.13 a week ago.