Oil markets polarized as OPEC brushes off Omicron fears
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Watchers of the oil market are divided between starkly different outlooks on crude oil prices, even though OPEC has a positive forecast for crude demand in 2022.
OPEC expects that the world will consume 99.13 millions barrels of crude oil per day in the first quarter 2022. This is an increase of 1.1million barrels per daily from the last month’s forecast. It also shows a less strict outlook regarding Covid-19 risk.
According to OPEC’s most recent monthly report, “mild” and “short-lived is the expected impact of the omicron variation on the pandemic.
The 13 oil-producing countries have not allowed fears about the omicron version to alter its timeline for returning to pre-pandemic oil consumption, but the market still feels the impact of this bearish sentiment.
Travel restrictions for international travel have been increased and certain state leaders and officials have reinstated mask-wearing requirements and regular PCR testing mandates. While the U.K. increased its Covid alert, Boris Johnson, the Prime Minister of the United Kingdom, warned of an “tidal tsunami” of more severe transmissible micron cases. However, data about the severity of this variant are still unknown.
International benchmark Brent crudeTrades in the mid $70 range at $73.54 per barrel at 10:00 AM. ET, Tuesday, just under 1%. West Texas IntermediateThe barrel traded at $70.53 per barrel, which was also slightly lower than 1%.
Louise Dickson from Rystad Energy wrote that few days in trading see the oil market as polarized today.
“While there is a clear bearish monster at the gates, the Omicron variant, bullish traders are placing bets that OPEC+ changes course and lowers crude output, which if realized will add to the support coming from Pfizer’s efficacy confidence in its antiviral pill against the pandemic’s latest strain.”
Should OPEC+ be redirected?
As there are no indications that OPEC+ and its allies will change their current plans to increase crude oil production by 400,000 barrels each day, the decision of OPEC is still not clear. Although the group has previously projected a large supply glut of approximately 275 million barrels over the first quarter of next, they stressed their willingness to reverse course on any plans to increase production.
Analysts believe that the goal is to raise market share, impede U.S. oil producers, and disincentivize Washington’s efforts to push for the Iran nuclear agreement, which would allow more Iranian crude to be returned to the market.
Suhail al-Mazrouei from the United Arab Emirates described Monday’s oil market conditions to reporters. He said, “We made the latest decision after studying the market fundamentals and are optimistic that we will be able to move towards a market with sufficient supply in the first quarter.”
Dickson indicated that for prices to remain at high levels, OPEC+ must “avert its plan of increasing output next month” by maintaining production stability or cutting.
OPEC+ will decide which future demand picture to use. This decision is dependent on the course of action. Dickson stated that there could be good reasons to reconsider its strategy. up to nearly 3 million bpd could be cut from the expected global oil demand in the first quarter of 2021Omicron will strike the entire world full-blown, triggering lockdowns.
While it’s gradually increasing production, OPEC+ is still far from its stated January goal of 400,000 barrels per day; its November production rose by 285,000 barrels per day, compared to a target of 400,000, according to its latest monthly oil report. Angola, Nigeria and other producer states are still unable to meet their production targets because of underinvestment and poor infrastructure.
However, that is still sufficient to reduce Brent’s prices significantly according to Edward Gardner, commodities economist, London-based Capital Economics.
In a Monday market report, he stated, “We believe OPEC will continue under-produce but it should still be able to account for a large part of the world’s oil production growth next years, which should drag Brent crude down to around $60 per barrel before end-2022.”
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