OPEC and its allies began two days of meetings on Wednesday to decide whether to release more oil into the market or restrain supply amid big gyrations in crude prices and fears about weaker energy demand because of the Omicron coronavirus variant.
Oil prices tumbled to near $70 a barrel on Tuesday, down from three-year highs above $86 in October. Prices posted their biggest monthly decline in November since the start of the pandemic, as the new variant raised fears of a glut.
Benchmark Brent was trading around $71 on Wednesday.
Ministers from the Organization of the Petroleum Exporting Countries began Wednesday's talks at 1315 GMT. That will be followed on Thursday by a meeting of ministers from the broader OPEC+ alliance, which includes OPEC, Russia and others.
Shortly after the OPEC talks began, a delegate told Reuters that the group was not discussing changes to output policy for now.
Russia and Saudi Arabia, the biggest OPEC+ producers, had said ahead of this week's meetings that there was no need for a knee-jerk reaction to amend policy.
Iraqi oil minister Ihsan Abdul Jabbar said he expected OPEC+ to extend existing output policy in the short term, Iraq's state news agency reported.
Since August, the group has been adding an additional 400,000 barrels per day (bpd) of output to global supply, as it gradually winds down record cuts agreed in 2020, when demand cratered because of the pandemic.
"The threat to oil demand is genuine," said Louise Dickson, senior oil markets analyst at Rystad Energy. "Another wave of lockdowns could result in up to 3 million bpd of oil demand lost in the first quarter of 2022."
Even before concerns about Omicron emerged, OPEC+ had been weighing the effects of last week's announcement by the United States and other major consumers to release emergency crude reserves to temper energy prices.
OPEC+ internal data, in a report seen by Reuters, forecast a 3 million bpd surplus in the first quarter of 2022 after the release of reserves, up from a previous forecast of 2.3 million bpd.
"Generally, the impact of Omicron seems to be jet-fuel related for now, particularly in Africa and Europe," the report said, as many countries barred travelers from southern Africa and some European states imposed new coronavirus restrictions.
"Transportation fuel demand within Europe might be also affected," the report added.
Goldman Sachs said the oil price slide in recent days had been excessive, with the market now pricing in a 7 million bpd hit to demand.
Adding pressure to prices, Federal Reserve Chair Jerome Powell said the U.S. central bank was likely to discuss speeding up its reduction of bond purchases amid a strong economy and expectations that a surge in inflation would persist.
OPEC+ has been gradually scaling back last year's record output cuts of 10 million bpd, equivalent to about 10% of global supply. About 3.8 million bpd of cuts are still in place.
But OPEC's November oil output has again undershot the level planned, as some OPEC producers have struggled to hike output.
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