Florence Tan and Heekyong Yan

(Reuters.) – Asian oil refiners’ margins fell to their lowest levels in five months, amid concerns about the Omicron coronavirus variant that could threaten oil demand recovery. Already hit by rising COVID-19 rates in Europe, the Omicron virus variant may also cause further losses.

Travel restrictions were imposed by governments worldwide on Saturday for travellers to southern Africa in an effort to stop the spread of Omicron. It was first identified in South Africa. Scientists race to discover if Omicron is more spreadable or has more serious consequences than the existing varieties.

The move comes after refiners’ margins have taken a major hit in Asia and Europe in recent weeks, as European countries implemented coronavirus restrictions to curb rising COVID-19.

Double-whammy is a risk to the global economic recovery, and oil demand. In 2021, the International Energy Agency predicts that it will increase by 5.5million barrels per hour (bpd), up to 96.3million bpd.

“At a time when many travel lanes are reopening, this is a setback,” said Howie Lee, an economist at Singapore’s OCBC bank.

“We will need two more weeks to determine what effect this new variant has on the oil demand.”

Oil prices fell on Friday due to concerns about this new variant, despite the fact that they were still low post-Thanksgiving.

The oil market plunged by more than 10% last Friday, the largest drop in a single day since April 2020. But it had managed to recover some of its losses by Monday at 0608 GMT. Oil prices were still up more that 3% today. Analysts stated that the Friday selloff was exaggerated. [O/R] , WTI crude futures, https://fingfx.thomsonreuters.com/gfx/ce/klpykdaaepg/Pasted%20image%201638160222388.png

The complex margins of Singapore were a barometer for Asian refiners’ profitability. They stood at $2.15 per barrel on Friday. This was the lowest figure since June 30, according to Refinitiv data.

Margins reached an all-time high of $8.45 per barrel a month back, which was the highest level since September 2019.

According to a South Korean official, “We have seen drastic declines in refining margins” over the last few days because of concerns about the Omicron coronavirus variant. He also pointed out the increasing number of countries that are imposing travel restrictions due to this new variant.

“From a refinery’s end, we are facing a double whammy – drops in oil prices and refining margins, which would likely worsen our profitability.”

Due to the sensitive nature the matter, the name of this person has been withheld. Asia refining margins slip from 2-year highs, https://fingfx.thomsonreuters.com/gfx/ce/egpbkardzvq/Pasted%20image%201638159705598.png

Analysts expect that gasoline demand will remain steady despite a worsening outlook on jet fuel. This is because most countries haven’t yet implemented domestic restrictions to movement due to the Omicron variation.

A Singaporean analyst said that “Jet demand is going to die, but I believe gasoline will stay there,” citing company policy.

“Europe was already going into lockdown so that’s a wash. It’s more about the (gasoline consumption in) U.S. and Asia.”

China’s tight borders may prevent Omicron from accessing the top oil importer in the world, according to an analyst at a Beijing-based consultancy. The fall in prices, however, could be beneficial for Chinese refiners, he said.

A China-based analyst said that while it was bad news for the rest of the world, “it’s good news for China because oil prices have fallen significantly.” He also refused to name his company due to policy.