OPEC+ expects the global oil market to show a worse-than-previously expected surplus in the first quarter of 2022, according to an internal report seen by Reuters, which could give the group another reason to pause monthly supply additions.
OPEC+ now expects a surplus of 2 million barrels per day (bpd) in January, 3.4 million bpd in February, and 3.8 million bpd in March, the report seen by Reuters shows.
The internal document also gave initial insights into the OPEC+ thinking about the potential impact of the Omicron COVID variant on global oil demand.
Currently, the group’s experts see the impact of the new variant as jet fuel-related, especially in Africa and Europe.
Following the discovery of the new variant, many countries banned flights from South Africa and other African countries, some—like Israel and Japan—closed borders to foreign visitors, while others, such as the UK, tightened requirements for entry by requiring all foreign visitors—regardless of vaccination status—to take a PCR test and self-isolate until they get back a negative result.
“Transportation fuel demand within Europe might be also affected,” the internal OPEC+ report seen by Reuters says.
The new variant emerged just as some European countries announced tighter restrictions to curb surging number of COVID cases, including a full lockdown in Austria.
Earlier this week, an internal report prepared for the technical committee meeting of OPEC+ seen by Energy Intelligence showed that global oil stocks were set to rise faster next year than previously expected.
The report analyzed oil market conditions before the Friday plunge in oil prices as a reaction to the Omicron variant, which sent Brent Crude down to the low $70s and WTI Crude below $70 per barrel.
OPEC and OPEC+ begin on Wednesday meetings to discuss production policy for January. OPEC and the Joint Technical Committee (JTC) are meeting on Wednesday, to be followed by a ministerial meeting of the full OPEC+ group on Thursday, after which decisions will be announced.
By Tsvetana Paraskova for Oilprice.com
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And while latest reports from the WHO indicate that the omicron variant isn’t more dangerous than the previous variants and that available vaccines do provide immunity against it and therefore a global lockdown is very unlikely, its impact could be fuel-related thus affecting the aviation industry slightly. This explains OPEC+ projections of a surplus in crude oil supplies in January and February.
However, both the global economy and the global oil demand are robust enough to absorb this surplus.
In view of the above and also the release of 50 million barrels from the US Strategic Petroleum Reserve (SPR), OPEC+ might consider freezing any more increases in production possibly until the second quarter of 2022 if the market warrants it.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London