Despite OPEC’s ‘Mild Omicron’ Projection, Oil Extends Losses for Third Day

Emmanuel Addeh in Abuja

Despite the forecast by the Organisation of Petroleum Exporting Countries (OPEC) that the Omicron variant of Covid-19 will be ‘mild’ on the oil industry, the commodity declined for a third day yesterday, as further restrictions were imposed to counter the spread of the virus.

Brent Crude traded at $72.72 per barrel early on yesterday, down by 1.33 per cent, as traders continued to assess the potential impact of the new variant on global oil demand amid mounting signs that an oversupply on the market is imminent.

This week’s decline had exceeded two per cent, as China, the world’s biggest importer of crude, was set to start 2022 with a subdued appetite.

This was projected to partially offset the traditional increase in demand from refineries to replenish inventories during the winter months.

Investors are currently assessing the rapid spread of the omicron variant as the world enters the year-end and the uncertainty surrounding the severity of the virus will only add more volatility.

But while there had been some level of uncertainty in the global oil market over the new variant, OPEC has been on a very different path, with its forecast for the current quarter remaining unchanged from the one it published a month ago.

In addition, the oil producers’ group has revised its outlook upward for the start of 2022 by 1.1 million barrels per day.

The organisation stated that its position was based on the assumption that the impact of the omicron variant on oil demand would, “be mild and short-lived, as the world becomes better equipped to manage Covid-19 and its related challenges.”

It forecast a steady economic outlook in both the advanced and emerging economies, despite current inflation and supply chain bottlenecks, ongoing trade issues and their impact on industrial and transportation fuel requirements.

However, the World Health Organisation (WHO) had cautioned against dismissing omicron, which has been reported in at least 77 nations as mild, considering how quickly it’s spreading.

Yesterday, Commerzbank predicted that international crude oil benchmark Brent, will drop to $70 per barrel on the back of an expected oversupply of oil in the first quarter of 2022.

In its monthly report on Tuesday, the International Energy Agency (IEA) said global oil production was set to outpace demand in December, led by growth in the US and OPEC+ countries.

“Much needed relief for tight markets is on the way, with world oil supply set to overtake demand starting this month,” the IEA noted.

“If OPEC+ continues to unwind its cuts, the first quarter of 2022 will see a surplus of 1.7 million bpd, and the oversupply could grow to 2 million bpd in the second quarter of 2022,” the agency added.

The organisation said the surge in cases was set to temporarily slow the recovery in global oil demand, but that the impact of the Omicron variant will likely be more muted than previous waves and may not upend the current demand recovery.