Oil demand to strengthen on ‘mild, short-lived’ Omicron impact
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Crude oil supplies may be a little tighter than expected with OPEC and its associates (OPEC+) expecting strong demand in 2022.
According to Bloomberg, internal OPEC+ research has indicated that the surplus in the first quarter of 2022 is expected to be 1.4 million barrels per day, or about 25% lower than forecast in early December.
OPEC+ also noted in its Monthly Oil Market Report in mid-December that the impact of the Omicron COVID variant would be “mild and short-lived”.
It’s not all about oil demand though, with concerns that Russian oil supplies might approaching their limit.
Russia produced 10.9 million barrels of oil per day during December, essentially unchanged from its output in November and about 37,000bpd less than OPEC+ quota.
The world’s third largest oil producer (in 2020) is also expected to fall short of its target of returning to pre-pandemic levels of oil production by May this year with Fitch Ratings indicating that it would not be met until the end of summer in the Northern Hemisphere.
Despite this, oil is still trading below the US$80 per barrel mark with the benchmark Brent Crude currently at US$78.91/bbl.
This comes as the expected continued high demand is offset by expectations that OPEC+ will stick to its plans to increase output in February by 400,000bpd.
Doing so will leave the oil consortium with about 3.4MMbpd of cuts to unwind by the end of September this year in accordance with its July 2021 agreement.
OPEC+ had slashed output by 5.8MMbbl to address the big fall in oil demand brought about by COVID-related travel restrictions and lockdowns.
This fall in demand has also impacted on oil and gas investments, which has raised concerns on the ability of oil suppliers to meet future demand.
Meanwhile, crude oil prices had increased 59% in 2021 due to the economic recovery from the pandemic, weather disruptions and increased demand arising from the gas shortage in Europe.