Crude oil has recorded six consecutive weeks of losses amid news of lockdown plans in Europe, the SPR reserve release announcement by the White House, and most recently, the emergence of a new coronavirus variant.
According to Bloomberg, since late November, Brent is down by 15 percent, which has shrunk its rise since the start of the year to 35 percent. The shrinkage was caused by the combination of Omicron, the SPR release news, and more oil coming from OPEC+ after the group agreed to stick to its output addition agreement in January as well.
“The short-term demand outlook was shaky at best and if the U.S. sees new restrictions, the oil market could see a supply surplus by the end of the month,” Oanda analyst Ed Moya told Bloomberg.
The United States has to date reported Omicron cases in at least a third of all states. According to the World Health Organization, the new variant has been detected in 38 countries, with early data suggesting it is more contagious than previous variants. However, reports quoting the South African doctor that first detected the virus suggest that its symptoms may be milder, leading some to suggest that the end of the pandemic may be in sight.
After six weeks of declines, oil began this week with a gain, after Saudi Arabia signaled optimism about demand by hiking its official January crude oil selling prices for Asia and the United States—its biggest markets. The Saudis raised the price of flagship Arab Light for Asia by $0.60 per barrel from December to a premium of $3.30 over the Dubai/Oman spread. Prices for the U.S. were hiked by up to $0.80 per barrel.
Even so, volatility on oil markets remains heightened, especially after OPEC+ effectively never ended its latest meeting, keeping its options open if it needs to adjust production in response to any global trends.
By Irina Slav for Oilprice.com
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Once it is established by the WHO that this is not the case and that available vaccines do provide immunity against it, we will so oil prices recoup their recent losses in no time with Brent crude surging to $85 a barrel before the end of the year.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London