Omicron should not reduce oil demand and economic activity

Oil prices are expected to maintain a steady uptrend this year as Omicron is unlikely to cause a massive drop in demand for crude, while supply concerns will support prices in the near term, according to the experts.

Crude prices, which rose nearly 60% in 2021, edged up in the first trading week of this year. Global benchmarks Brent and WTI recorded gains of more than five percent in the first week of the year, with prices at their highest since late November, as supply concerns topped fears that the rapid spread of the Omicron coronavirus variant will hurt demand.

“Oil prices rose after unrest in Kazakhstan threatened oil supplies. The country is home to major crude extraction and transportation facilities, and investors are concerned that social issues will affect actual production and delivery capacity, ”Wael Makarem, senior market strategist for China, told Khaleej Times. Mena region at Exness.

Supply disruptions

Century Financial’s director of investments in global markets, Vijay Valecha, said oil prices registered a third consecutive weekly increase.

“With current weekly gains of more than five percent, benchmarks are quickly approaching their October highs. The current strength in energy prices can be largely attributed to the general narrative about tightening supply. Reports of supply disruptions in North America and Kazakhstan have brought attention back to the supply crunch, ”he said.

He said much of western Canada was in the midst of a deep frost over the past two weeks.

“Due to the extremely cold conditions, oil production from the Bakken field in the United States and North Dakota was also crippled. Kazakhstan is currently in a huge turmoil as political protests damage the overall economic scenario. Saudi Arabia has cut prices for all grades of crude it will sell to Asia in February to the lowest premium seen in the past three months. This is due to increased supplies of Opec + and fears of further spread of Omicron. WTI and Brent support is seen at the $ 77 and $ 80 levels, respectively. On the upside, resistance is seen at the $ 81.50 and $ 84 levels, respectively, ”Valecha told the Khaleej Times.

High prices over 3 years

Brent’s 2021 annual average of $ 71 a barrel is the highest in three years. The price of WTI crude oil followed a similar trend to that of Brent and was on average $ 3 per barrel lower than Brent in 2021. The spot price of Brent crude oil started the year at $ 50 per barrel. and peaked at $ 86 per barrel at the end of October before declining in the last weeks of the year.

Dayanand Mittal, oil and gas analyst at JM Financial Institutional Securities, said oil prices are expected to normalize after March and April. He said

“Short-term oil prices are expected to remain favorable, but over the medium to long term, prices are expected to moderate,” Mittal said.

Rystad Energy analyst Louise Dickson said the rise in oil prices mainly reflects market nervousness as unrest escalates in Kazakhstan and the political situation in Libya continues to deteriorate and put production of oil away.

Omicron’s concern eases

Experts have said the latest variant of Covid Omicron is unlikely to negatively impact crude oil demand and economic activity.

“Concerns about a massive drop in demand for oil have faded now that it has become clear that Omicron causes milder forms of the disease than previous variants of the virus, meaning massive restrictions on mobility won’t are not likely, ”Commerzbank analyst Carsten Fritsch said.

Meanwhile, additions of offers from the Organization of the Petroleum Exporting Countries (OPEC), Russia and their allies – collectively referred to as Opec + – are not keeping up with the growth in demand.

Opec production in December increased by 70,000 barrels per day from the previous month, compared to the 253,000 bpd increase authorized under the Opec + supply agreement which restored production in 2020 when demand collapsed under Covid-19 lockdowns.

Production in Libya fell to 729,000 barrels per day from 1.3 million barrels per day last year, in part due to pipeline maintenance work.

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