That's an uppercase O with an umlaut on it. I type this with 'option u shift o'.

For example - https://sv.wikipedia.org/wiki/Sahara

    Sahara (arabiska: الصحراء الكبرى, aṣ-ṣaḥrā' al-kubra, "Den största öknen")

You'll note the öknen there and if it was capitalized you'd have Öknen.