Oil market set for weekly loss as Omicron fears dent demand
Both major oil benchmarks are on track for a weekly loss, as prices dipped again on Friday with soaring cases of the Omicron variant across developed economies raising fears of more restrictions and further knocks to fuel demand.
Brent Crude and WTI Crude were both down over two per cent in the afternoon, trading at $73.46 and $70.89 per barrel respectively.
This contrasts with last week’s partial recovery, which put the brakes on six successive weeks of declining prices – including a 13 per cent drop in one day in late November.
Earlier this week, The International Energy Agency has also downgraded its demand expectations – anticipating global travel to decline this winter as the variant spreads.
Meanwhile, worries over fuel demand have wreaked havoc with airline stocks on the London Stock Exchange.
On Friday evening, UK has reported three successive record-breaking days of Omicron cases – with 93,045 infections in the past 24 hours alone.
Hospitalisations have not yet increased at comparable rates – but Prime Minister Boris Johnson did manage to push through controversial new restrictions this week such as mask mandates, compulsory vaccinations for NHS workers, and Covid-19 passes to join large gatherings.
He also held a press conference on Wednesday night alongside his chief medical officer Chris Whitty urging people to be cautious this winter and not to engage in unnecessary meetings – with critics accusing him of creating a lockdown by stealth.
The UK is not alone in its struggles with the Omicron variant, with Denmark anticipated to announce new restriction measures with cases doubling every day in the country, while US companies are reportedly pausing plans to bring people back to offices.
The Organization of the Petroleum Exporting Countries and its including Russia (OPEC+) are set to meet on January 4 to discuss their supply plans.
So far, they have remained committed to increasing supplies by 400,000 barrels per day from January.
There are now concerns of a surplus reaching 3.8m barrels by March 2022.
Ole Hansen, head of commodity strategy at Saxo Bank, argued that alongside the effect of the Omicron variant on demand, economic policy and milder temperatures in key markets were also limiting the growth in oil prices.
He said: “A weaker dollar has been offset by tighter monetary policies potentially softening the 2022 growth outlook further. While Europe is dealing with a worsening energy crisis, milder than normal weather in Asia has led to a less demand for fuel products used in power generation and heating.”
In his view, this would delay further price rises however, he still expected oil markets to rally later in 2022.
Hansen concluded: “We still maintain a long-term bullish view on the oil market as it will be facing years of likely under investment with oil majors losing their appetite for big projects, partly due to an uncertain long-term outlook for oil demand, but also increasingly due to lending restrictions being put on banks and investors owing to a focus on ESG and the green transformation.”