Oil Markets Polarized

The world will consume 99.13 million barrels of crude oil per day in the first quarter of 2022. This is an increase of 1.1 million barrels per day from its previous forecast a month ago. It indicates a more relaxed outlook on COVID-19 risks.

The impact of the Omicron variant expects to be “mild and short-lived,” according to OPEC’s latest monthly report. Moreover, they added that currently, the world has better prepared to deal with the pandemic.

The 13 member group of oil-producing countries has not changed its projected timeline for returning to pre-pandemic oil demand. However, the market still feels the weight of bearish sentiment. International travel restrictions tightened, and some state and local officials have reinstated policies such as mask-wearing and regular PCR test mandates. The United Kingdom raised its COVID alert level, and Prime Minister Boris Johnson warned of a “tidal wave” of more transmissible Omicron cases. However, data on the severity of the variant is still unknown.

International benchmark Brent crude was trading in the low $70 range, around $73.54 a barrel, down slightly more than 1%. Meanwhile, West Texas Intermediate traded at $70.53 a barrel, also down slightly more than 1%. We see the oil market as polarized today, with only very few trading days.

OPEC+ Reverse Course?

The decision of OPEC and its allies, known as OPEC+, remains to be seen, as there has been little indication that the group will deviate from its current plan of increasing crude production by 400,000 barrels per day in January 2022. The group previously predicted a massive supply glut of 275 million barrels during the first quarter of next year while stressing that it is willing to backtrack on its plan to increase production if necessary.

While it may appear counterproductive, analysts believe the strategy will increase market share and stymie U.S. shale producers with lower oil prices. Speaking to reporters in Dubai on Monday, UAE Energy Minister Suhail al-Mazrouei described the oil market as in good shape.

That course of action is entirely dependent on how OPEC+ interprets the future demand picture. Dickson wrote that it could be an excellent reason to reconsider its strategy, as Omicron could reduce global oil demand by up to 3 million BPD in the first quarter of 2021 if it hits the world fully blown and triggers lockdowns.

Production is gradually increasing. However, OPEC+ is still falling short of its stated January goal of 400,000 barrels per day. According to its latest monthly oil report, November production increased by 285,000 barrels per day, compared to 400,000. Due to underinvestment, poor infrastructure, and security issues, producer countries Angola and Nigeria continue to pump below their output targets.