OPEC remains bullish on oil demand and downplays Omicron variant
The Organisation of the Petroleum Exporting Countries (OPEC) has raised its oil demand forecast for the first quarter of 2022, anticipating the new Omicron variant will be “mild and short-lived”.
It has responded bullishly to fears of the variant’s effect on markets.
In its latest monthly report, it anticipates oil demand will average 99.13 million barrels per day in the first quarter of 2022, up 1.11 million barrels per day from its forecast last month.
The organisation has kept its full-year growth outlook unchanged, predicting that world oil demand will grow by 5.65 million barrels per day in 2021, after last year’s historic decline at the start of the pandemic.
It only expects the new variant to have a limited impact on market performance as “the world becomes better equipped to manage COVID-19 and its related challenges.”
Consequently, in 2022 OPEC expects further growth in demand of 4.15 million barrels per day, unchanged from last month, which will push world consumption above 2019’s pre-pandemic levels.
This optimistic outlook comes amid ongoing supply chain issues, inflation worries, concerns over energy shortages and geopolitical tensions.
It also contrasts with the initial reaction to the new variant, with prices plummeting over 10 per cent in late November on both major benchmarks when the variant was first discovered.
The report also revealed OPEC output in November rose by 290,000 bpd to 27.72 million barrels per day, led by increases in top two producers Saudi Arabia and Iraq and a recovery from outages in Nigeria.
OPEC and its allies including Russia, known as OPEC+, are gradually unwinding record output cuts put in place last year when prices tumbled to historic lows.
Earlier this month, OPEC+ agreed to boost monthly output by 400,000 barrels per day in January, despite concerns about the new variant.
WTI and Brent Crude have declined only by just over half a per cent following the news, trading at $71.30 and $74.72 respectively.
Nathan Piper, head of oil and gas research at Investec, told Morning Wire current market conditions should strengthen oil prices.
He said: “Short term, we expect the oil price to remain volatile as the impact of Omicron is assessed. However, in the absence of major lockdowns we believe prices should strengthen into 2022. This is underpinned by oil inventories already at 2015 levels, OPEC+ unwinding previous cuts and oil demand building beyond 2019 levels.”
The optimistic report will be a relief to investors as the UK enters ‘Plan B’ restrictions including work from home advice and vaccine passports, with fears of social distancing and restrictions across key economies reducing oil demand.