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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Uncertainty To Dominate Oil Markets In 2022

  • Uncertainty has returned to oil markets at the end of the year as a new variant of Covid combines with inflation fears to threaten demand 
  • Predicting the price of oil is always difficult, but with an energy crisis in Europe, OPEC+ controlling production, the energy transition underway, and Covid continuing next year is particularly difficult to read
  • The global energy transition is facing plenty of problems, not least of which is rising costs, and will be a key factor to watch in 2022
Oil markets

Following the rebound in oil and gas demand in 2021, the market is headed to 2022 with renewed uncertainties about prices, demand, and the industry’s longer-term prospects as Omicron COVID cases spike and investors continue to press companies toward decarbonization.   Will oil and gas demand continue to recover and clean energy installations continue to surge next year? Or will risks lurking for some time materialize to hamper green energy rollouts and upend the rebound in global oil and gas demand?  

The closer we get to the end of 2021, the more uncertain the 2022 outlook becomes, with Omicron spooking governments in Europe that have already started to tighten restrictions or re-impose strict lockdowns in the case of the Netherlands. The UK is not ruling out stricter measures, and many other European countries are tightening travel restrictions. 

$100 Oil?

The Omicron impact on economies and fuel demand and the effect on oil demand recovery and prices will be a major theme throughout 2022, especially during the first few months of the year. 

As difficult as it is to predict oil prices in “normal” circumstances, the uncertainties with the pandemic have made the task of forecasting even more difficult. Currently, outlooks range from oil averaging around $70 next year to hitting as high as above $100 per barrel at some point in 2022 or 2023.  

OPEC sees a “mild and short-lived” Omicron impact on oil demand, while the International Energy Agency (IEA) expects a temporary slowdown in demand recovery due to the new variant, but not an entirely upended demand trend. 

In the early days of the Omicron variant spreading, JP Morgan said that oil could soar to $125 per barrel next year and $150 in 2023 due to OPEC’s limited capacity to boost production. 

OPEC left the door open to potential immediate adjustments in its oil production policy with the Omicron uncertainty, so the cartel’s actions would be an important driver of oil prices next year, along with the COVID developments. 

Oil prices rising to $100 a barrel is unlikely, at least for any sustained period next year, Simon Flowers, Chairman, and Chief Analyst at Wood Mackenzie, wrote in a recent post discussing the key themes in oil and gas in 2022. 

Some analysts expect a harsh colder-than-usual winter in the northern hemisphere to exacerbate the energy crisis in Europe and deplete its stockpiles of natural gas in storage which are already at a decade low for this time of the year. This could prop up demand for heating with fuels other than natural gas, including oil products, potentially driving up oil demand even if lockdowns limit gasoline consumption.  

When Will The Energy Crisis End? 

“A bad winter will push gas and power prices—already near record levels—higher still,” says WoodMac’s Flowers. 

A cold snap this weekend already sent Europe’s power prices surging to new records, as gas storage levels are low and electricity availability is low too after France shut down four nuclear reactors. 

Natural gas prices are highly volatile and sensitive to (the lack of) extra supply from Russia, but they are set to fall in the spring with warmer weather.  

Related: Gas Markets Could See Sudden Bout Of Volatility However, even at the end of the winter season in the spring of 2022, gas prices in Asia and Europe will remain higher than pre-crisis levels, with a structurally tighter gas market than before COVID, WoodMac’s analysts say. 

“We expect LNG prices in Europe and Asia to settle at more than double the average for prevailing prices between 2015 and 2020 until new supply comes onstream in 2026,” they noted. 

A major risk to the gas market outlook next year and beyond would be whether gas will still be perceived as a reliable, cleaner-than-coal fuel to help a coal-to-gas switch and backup for renewables or as just another fossil fuel that shouldn’t be considered the “bridge fuel” to clean energy sources anymore. 

Will Rising Costs Hold Back The Energy Transition? 

While Big Oil directs more investments to low-carbon energy, the pace of the capacity additions of the already mature solar and wind technology could slow because of higher costs, according to one risk Wood Mackenzie sees for a potential supercycle in metals and a continued surge in clean energy installations. 

Despite the high commodity and transport prices, renewables are on track for record growth in 2021, the IEA’s Executive Director Fatih Birol said earlier this month, noting however that “if commodity prices stay high until the end of 2022, it would wipe out 5 years of cost reductions for wind power – and 3 years of reductions for solar PV.”   

The world will still need double new annual capacity over the next five years to achieve the net-zero by 2050 scenario, the IEA said in its annual Renewables 2021 Market Report with a forecast to 2026. 

According to WoodMac, rising input costs and wages, supply chain challenges, and logistics could “hamper the roll-out and development of a raft of low-carbon technologies.” 


The booming U.S. solar industry is set to be torn between huge opportunities and major stumbling blocks in the coming months and years, and it will likely see a wild “solar coaster” ride in the next few years, Wood Mackenzie earlier this month. 

Related: Are Oil Markets Already Oversupplied?

The U.S. solar market installed 5.4 GWdc of solar capacity in the third quarter, up by 33 percent from the same period of 2020 and the largest Q3 on record. However, costs continued to rise.

“Installed costs increased across all market segments for the second quarter in a row, reflecting supply chain challenges. In every segment besides residential, year-over-year price increases were the highest they’ve been since 2014 when Wood Mackenzie began tracking pricing data,” last week’s Solar Market Insight Report 2021 Q4 by the Solar Energy Industries Association (SEIA) and Wood Mackenzie showed.

The outlook of U.S. renewable markets and economic growth became even more uncertain when Democratic Senator Joe Manchin of West Virginia, a crucial vote in a divided Senate, said on Sunday that he would not support President Joe Biden’s proposed Build Back Better Act. 

It looks like uncertainty will be the single biggest theme in oil and gas markets in 2022.  

By Tsvetana Paraskova for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on December 22 2021 said:
    Rather than trying to predict oil prices in 2022, it is far better to look for trends in the market. This will tell you where crude oil prices and demand are headed.

    If a global lockdown is re-introduced, this will certainly affect global oil demand and lead to lower prices. The upside to this is that there will be a huge rebound in oil demand and prices once the lockdown is lifted exactly as happened in 2020.

    I believe that the impact of Omicron will be short-lived and therefore its impact will be muted. And with both the global economy and global oil demand very robust, the trend for both will be upward. This means that oil prices will recoup all their previous losses and resume their surge which could take Brent crude towards $80-$85 a barrel during the first quarter of 2022.

    A highly influential player like OPEC+ will ensure a balance between supply and demand by adjustments to its oil production policy.

    However, a widening deficit in the global oil market could lead to $100 oil by the end of 2022 or the first quarter of 2023 but only if Omicron doesn’t cause a lengthy lockdown. This is highly unlikely.

    Europe’s energy crisis may never end as long as the EU continues to accelerate energy transition at the expense of oil and gas. However, an early certification of Nord Stream 2 gas pipeline could help alleviate the crisis significantly.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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