By Ileana Garcia Mora

Investment.com: 2021 marked a major recovery in oil markets supply and demand. It was due to the gradual opening of the world economy following Covid.

Prices rose 46.5% to $71.10/barrel as of December 22nd from $48.52/barrel and a high of $85.41/barrel on Dec. 22, a seven-year record. As of December 22, prices had experienced a 43% rise to $73.82/barrel. It was a record high price at $86.70/barrel, up from $50.56/barrel.

The “post-pandemic year” for oil markets could be 2022, with many expecting demand to return 100% to pre–Covid levels by that time. This is a good sign for oil investors but there’s still much uncertainty.

Below are 5 key factors that will determine how the outlook for oil markets in 2022.

1. Weather conditions: A strong winter could push prices higher

If it is extremely cold, like last winter’s, the price per barrel of oil can reach $100 or higher.

The severe winter of February 2021 caused havoc across the south United States. At least 24 were killed and many thousands left without electricity.

“Though WTI will trade between 65-90 dollars per barrel in the next year, it could still be priced at 100 dollars per barrel during the first quarter of 2019 if extreme cold is detected, as was the case last winter,” Ana Azuara from Grupo Financiero base, Manager of Economic Analysis.

2. Fear of New Covid Variants that Threaten the Market

The peak of 2020 has come and gone, but Covid remains. The advancement of global vaccination methods and the creation of new Covid varieties are two elements that may continue to impact mobility and oil demand.

Fears on the demand-side are likely to persist at least until there is herd immunity. For herd immunity to occur, it is expected that around 70% of the population in the world will have to get vaccinated. Azuara stated that the absence of vaccinations will lead to variants that can jeopardize energy consumption and global economic activity.

It is sufficient to see what Omicron did in the week ending November 2021, which shows the danger posed by variants.

“In the days since Nov. 26, a total of 56 countries have instituted some sort of travel ban designed to ‘guard’ against Omicron,” commented Ellen R. Wald, an energy industry analyst, in an articleLearn more about the topic.

Travel bans that are new could result in restrictions to mobility, temporary flight suspensions and fuel demand issues for oil and fuel.

3. The Specter of Inflation

Inflation is a key concern in 2021. Its impact on the oil markets, and especially prices, has been a major issue traders have to be aware of.

The United States saw inflation accelerate to levels never seen since almost 40 years ago. It reached 6.8% according to the Consumer Price Index (CPI) and the wholesale producer price index prices rose 9.6%. Federal Reserve finally expressed concern over the rising prices. It shared its 2021 December meeting projections about three rate hikes by 2022.

Wald: “When the inflation rate rises, then there’s a corresponding upward pressure on oil prices.” wrote. Oil producers face higher labor, transportation and parts costs. Additionally, oil producers have seen a decline in the value of each dollar earned for selling their product. Therefore, the desire to sell each barrel of oil for more dollars increases, creating an upward pressure on the price of oil.”

4. OPEC+ and Increased Supplies

The supply of crude oil may increase in 2022. These fears, combined with the problems experienced by the demand for oil, can be detrimental to the market.

The IEA estimates that the global average oil production for 2022 will exceed the production of 2021 by 5.46 millions barrels. Azuara explains, “OPEC will continue increasing its oil production,” as they’ve already stated, even with the Omicron variant.

OPEC+ is optimistic about oil’s prospects in 2022, according to its latest report. According to its most recent forecastIt predicted a demand of 99.13 millions barrels per day for Q1 2022. This will be followed by pre-pandemic levels in Q3. OPEC+ is of the opinion that Omicron’s variant will be mild and plans to increase its supply in the coming year. This in the face of the World Health Organization and others still terming the risk posed by Omicron as “very high”.

This will undoubtedly be an important factor in determining prices’ direction for the first quarter in 2022.

5. Geopolitical Tensions – Russia vs. Ukraine. US vs. Iran

Other geopolitical risks will continue to impact the oil market, such as the ongoing trade war between China, the United States, and Iran.

Russia also plays a significant role, especially in the field of natural gas. It is capable of changing the price of oil.

Russia is the third-largest oil producer worldwide and may be subject to sanctions if the United States takes military action against Europe. (Russia also provides more than half of the European Union’s natural gasThere are several natural gas pipelines through Ukraine. As the world considers all of it, a conflict between Russia and Ukraine could lead to a spike in prices,” Wald said. article.

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In 2022, the oil market could see a complete recovery of demand and supply. According to an EIA report from recent, it expects some comfort in global oil market. This is because the EIA believes that the supply will improve under better demand.

However, these factors could cause energy prices to drop. While oil investors are encouraged, the future for 2022 is uncertain.