Oil prices stable with supply disruptions cancelling out fears of reduced demand
Oil prices were stable on Monday, as supply disruptions in Kazakhstan and Libya offset fears of a surplus amid soaring Omicron infections around the world.
Brent Crude fell 0.6 per cent to $81.27 per barrel, while WTI Crude dropped 0.7 per cent to $78.35.
The two major benchmarks gained five per cent last week after protests in Kazakhstan disrupted train lines and hit production at the country’s top oilfield Tengiz, according to Reuters reports.
The unrest killed 164 people last week, with security forces detaining over 8,000 people.
Russian President Vladimir Putin deployed 2,500 troops to Kazakhstan this week at the request of the country’s president Kassym-Jomart Tokayev, as part of the Kremlin-backed Collective Security Treaty Organisation (CSTO) to clamp down on protests.
Meanwhile pipeline maintenance in Libya pushed production down to 729,000 barrels per day from a high of 1.3m bpd last year.
Oil is also drawing support from lower-than-expected supply additions from the Organization of the Petroleum Exporting Countries, Russia and allies (OPEC+).
The group committed to previously agreed production increases of 400,000 barrels per month on January 4, but it is increasingly uncertain whether it will be able to meet its pledged target.
OPEC’s output in December rose by 70,000 bpd from the previous month, compared to the 253,000 bpd increase allowed under the OPEC+ supply deal.
Meanwhile, strong demand and a sharp fall in oil inventories have pushed the market structure for Brent and WTI Crude into deep backwardation, meaning the current value is higher than it will be in later months.
This encourages traders to release oil from storage and sell it promptly.
A surge in COVID-19 infections, however, put is putting pressure on oil prices.
Markets were buoyed last month by early studies suggesting Omicron has a lower risk of severe disease or hospitalisation compared to the previously dominant Delta variant.
It is looking increasingly unlikely that full-scale lockdowns will be introduced in key markets such as the US and UK.
However, restrictions have been re-imposed in key European markets such as Germany, France, Austria and Netherlands, while soaring cases could reduce demand for air travel as people reduce their social gatherings even if lockdowns are avoided.