Oil market watchers are torn between significantly different forecasts for crude oil prices, even after OPEC’s upbeat forecast for crude demand in 2022.
OPEC’s outlook shows the world consuming 99.13 million bpd of crude oil in the first quarter of 2022, up 1.1 million bpd from its last forecast a month ago, suggesting a promising outlook. more relaxed about Covid-19 risks.
OPEC’s latest monthly report says the impact of the omicron variation is forecast to be “mild and short-lived”, OPEC’s latest monthly report said, adding that the world better equipped to manage the pandemic.
While the group of 13 oil-producing member countries is not concerned about the omicron variation changing the projected timeline of a return to pre-pandemic oil demand, the market is still feeling the weight of the sentiment. discount reason.
International travel restrictions have increased, and some state and local leaders have re-imposed things like wearing face masks and mandating regular PCR testing. The UK has raised its Covid alert level, while Prime Minister Boris Johnson warned of a “tidal wave” of more transmissible omicron cases, although data on the severity of the variant is still unavailable. clearly.
International standard Brent Crude Oil is trading in the low $70 range, around $73.54/barrel at 10:00 a.m. ET on Tuesday, down just over 1%, with West Texas Intermediate was trading at $70.53 per barrel during the same period, also down just over 1%.
“Few trading days have seen the oil market as polarized as it is today,” Louise Dickson, senior oil market analyst at Rystad Energy, wrote in a note Tuesday.
“While there is an obvious bearish monster at the doors, the Omicron variant, bullish traders are betting that OPEC+ changes course and reduces crude production, which if implemented will added support comes confidence in Pfizer’s effectiveness in antivirals against the latest pandemic strain.”
Should OPEC+ reverse course?
The decision by OPEC and its allies, within a larger group called OPEC+, has yet to be announced, as there is little indication so far of the group’s failure to implement its plan to increase crude production further. 400,000 bpd in January 2022. Previously, the group forecast a large oversupply of 275 million bpd in the first quarter of next year, stressing that it was ready to reverse course if needed in the production plan.
While it may seem counter-productive, the strategy there could be to increase market share and embarrass US shale producers with lower oil prices, as well as discourage incentives, say analysts. Washington is trying to get back to the Iran nuclear deal that will be profitable. adding Iranian crude to the market.
United Arab Emirates Energy Minister Suhail al-Mazrouei described the oil market as “in good shape”, speaking to reporters in Dubai on Monday. “We have made our latest decision based on studying all of the market fundamentals and we are confident that we will move into a well-supplied market during the quarter,” he said. Firstly.
For prices to stay high, said Dickson, OPEC+ will have to “reject plans to increase production next month, either by holding steady or by cutting production.”
All of that action depends on how OPEC+ reads the future demand picture. “There may be a good reason to reconsider your strategy,” wrote Dickson, “as could cut by almost 3 million bpd from projected global oil demand in the first quarter of 2021 if Omicron hits the world completely blows up and triggers the lockdown. “
While gradually increasing production, OPEC+ is still far from its stated target in January of 400,000 bpd; Its November production rose 285,000 barrels per day, compared with a target of 400,000, according to its latest monthly oil report. Producing nations Angola and Nigeria are still pumping below their output targets due to non-investment, weak infrastructure and security issues.
Still, that was still enough to send Brent prices down significantly, said Edward Gardner, commodities economist at London-based Capital Economics.
“We think OPEC will continue to under-produce, but it still has to account for a large share of the world’s oil production growth next year, which should drag down Brent prices to around $60 per barrel by the end of the year. 2022,” he said on a market. The note was published on Monday.
