Janet Yellen says it’s time to stop calling inflation ‘transitory.’

That message seemed to be sinking in, at least on Thursday. Prices dipped sharply as it emerged that OPEC Plus would raise production. But they recovered quickly, and later in the day futures were trading 1.7 percent higher, at about $70.10 a barrel for Brent crude, the international benchmark.

The producers’ decision to keep adding oil to the market for now was also “a victory for the Biden administration,” wrote Helima Croft, head of global commodities at RBC Capital Markets. President Biden’s aides had pressured Persian Gulf producers to continue increasing production in the hope of reducing gasoline prices for American drivers.

Though many analysts predicted that the group might pause the monthly increases it agreed on in July, or even cut output, others said the decision taken on Thursday made sense. No one yet knows whether the new Omicron variant will prove a big hit to the economy, a passing worry or something in between. A hasty halt to the production increases might also have sent a negative signal to the markets about the group’s view of the global economy.

At the moment, oil market fundamentals remain strong. In recent months, strong demand for oil and the producers’ restraint on output have drained stockpiles to low levels.

And analysts pointed out that future demand is probably holding up at least in the short term. “Middle East OPEC members will likely have seen good demand for their crude in January,” analysts from FGE, a consulting firm, said in a report on Thursday, as Asian economies powered ahead.

Maintaining the planned increase will probably also ease friction with the Biden administration, which last month orchestrated a planned release of oil stocks from the United States Strategic Petroleum Reserve in conjunction with smaller moves by other large oil consumers.

The unusual rebellion over prices, which included China, Japan, India and South Korea, all key customers for Persian Gulf oil producers, is a worrying development for countries like Saudi Arabia and the United Arab Emirates. It could ultimately threaten both their national finances, which are dependent on oil revenue, and their control of markets.

The planned release of the oil reserves, coupled with the impact of the new variant, have pushed prices down more than 17 percent since the seven-year highs of about $85 a barrel reached in October — probably accomplishing much of what the White House wanted.

Analysts say lower prices will not only ease tensions with Washington but also accomplish other OPEC Plus goals, including discouraging investment in shale oil drilling in the United States.

Current prices may also reduce the incentive for the Biden administration to reach a nuclear deal with Iran in ongoing indirect talks. An Iran free of sanctions could quickly put substantial volumes of oil on the market, a potential worry for Tehran’s fellow members of the Organization of the Petroleum Exporting Countries, like Saudi Arabia.

Some analysts say that OPEC Plus may just be postponing inevitable cuts in deference to Washington, and that it will need to squeeze output if it wants to protect prices.

“The longer they wait, the more they may need to do,” said Bill Farren-Price, a director at Enverus, a market research firm.

Still, for a diverse group like OPEC Plus, sticking to a plan at a time of uncertainty is an easier sell than a change of course.

Article source: https://www.nytimes.com/live/2021/12/02/business/news-business-stock-market