Peter Nurse   

Investing.com — On Monday, oil prices fell as supply concerns eased and fears about Omicron infections in China, which is the second most populous economy, increased. 

Futures were trading 0.2% less at $78.75 per barrel by 9AM ET (1400 GMT) and contract prices fell 0.2% to $81.55. 

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Tianjin is a Chinese port and announced Monday plans to conduct tests on its 14,000,000 residents in the 48-hours following the discovery of Covid clusters.

“While we see other countries adapting to live with Covid, China clearly continues to pursue its zero-covid policy, “ said analysts at ING, in a note. “This is a risk to oil demand since China is the largest crude oil importer in the world. We are also approaching Chinese New Year, a time when there is normally plenty of domestic travel, and so any domestic restrictions will weigh on oil consumption.”

While this demand potential impact is significant, the market’s main focus is on supply dynamics.

Tengizchevroil Kazakhstan, the largest oil-and gas venture, has begun increasing production at their important Tengiz Field, Chevron stated on Sunday. The increase is taking place after protests and disruptions caused by high fuel prices.

Similarly, Libya’s oil production received a major boost with the completion of maintenance works on a major crude pipeline over the weekend, though shutdowns elsewhere are still curtailing output.

However, the main problem is the inability to increase production by OPEC or its allies as promised. Despite the fact that Omicron cases have increased, global inventories still remain well below their historical averages. This has led to thousands of flight cancellations.

“There are only a handful of members that have the capacity to increase output, whilst others are failing to meet their agreed production levels due to disruptions and lack of investment,” added ING.