The oil market is polarized because OPEC has eliminated omicron’s concerns

Even if OPEC makes an optimistic forecast of crude oil demand in 2022, oil market observers are still in a dilemma between their very different forecasts of crude oil prices.

OPEC’s outlook believes that the world will consume 99.13 million barrels of crude oil per day in the first quarter of 2022, an increase of 1.1 million barrels from the previous forecast a month ago, indicating that the outlook for Covid-19 risks is more relaxed.

OPEC’s latest monthly report stated that the impact of the omicron variant is expected to be “mild and short-lived,” adding that the world has the ability to better respond to the epidemic.

Although the 13 oil-producing country groups did not let the concerns about the omicron variant change their estimated timetable for resuming pre-pandemic oil demand, the market still feels the pressure of bearish sentiment.

International travel restrictions have increased, and some state and local leaders have re-implemented regulations such as wearing masks and regular PCR testing. The UK raised its Covid alert level, and its Prime Minister Boris Johnson warned that omicron cases are more contagious, but data on the severity of the variant is still unclear.

International benchmark Brent crude oil At 10:00 am Eastern Time on Tuesday, it was traded at a low of 70 US dollars, about 73.54 US dollars per barrel, a drop of slightly more than 1%. West Texas Intermediate At the same time, the transaction price was US$70.53 per barrel, a drop of slightly more than 1%.

“There are few trading days that see the oil market as polarized as it is today,” Resta Energy senior oil market analyst Luis Dixon wrote in a report on Tuesday.

“Although there is an obvious bearish monster at the door, the Omicron variant, bullish traders are betting on OPEC+ to change course and reduce crude oil production. If achieved, this will increase Pfizer’s support for confidence in the efficacy of its antiviral drugs against the pandemic. . The latest strain.”

The decision of OPEC and its allies in a larger organization called OPEC+ remains to be seen, because so far there are few signs that the organization has deviated from its current plan to increase crude oil production by 400,000 barrels per day in January 2022. The group previously predicted that there will be a large oversupply of 275 million barrels in the first quarter of next year, and emphasized that it is prepared to change the direction of its production increase plan if necessary.

Analysts said that while this may seem counterproductive, they said the strategy there may be to increase market share and hinder US shale oil producers with lower oil prices, and prevent Washington from pushing for a return to the Iran nuclear agreement. More Iranian crude oil Into the market.

Suhail al-Mazrouei, the energy minister of the United Arab Emirates, told reporters in Dubai on Monday that the oil market was “well.” “We have made the latest decision based on the study of all the fundamentals of the market, and we are confident that we will enter a fully-supplied market in the first quarter,” he said.

Dixon said that in order to keep prices high, OPEC+ will have to “avoid its plans to increase production next month by maintaining stable production or reducing production.”

The course of action depends entirely on how OPEC+ views future demand. “There may be good reasons to reconsider its strategy,” Dixon wrote, “because Global oil demand is expected to decrease by nearly 3 million barrels per day in the first quarter of 2021 If Omicron strikes the world completely and triggers a blockade. “

Despite the gradual increase in production, OPEC+ is still far from reaching its January target of 400,000 barrels per day. According to its latest monthly oil report, its November output increased by 285,000 barrels per day, while the target is 400,000 barrels. Due to insufficient investment, weak infrastructure and safety issues, production in the producing countries Angola and Nigeria are still below their production targets.

But this is still enough to cause Brent crude oil prices to fall sharply, said Edward Gardner, a London-based Capital Capital macro commodities economist.

“We think OPEC will continue to under-produce, but it should still account for a large part of the growth in global oil production next year, which will drag Brent crude oil to about $60 per barrel by the end of 2022,” he said in a market. Notes published on Monday.