Reports about mild severity of omicron likely to support oil markets
Oil markets performed better in November with a barrel of crude at $82 as compared to December’s marginally weaker performance at $74 per barrel.
Despite the difference, the price levels continue to stay firm and well supported remaining above $70 per barrel.
The factors that are responsible for keeping the prices above the $70-mark include low levels of inventories, OPEC+ falling spare capacity, seasonal strong demand and Iran nuclear. Oil markets are, however, concerned with the coronavirus variant omicron, and expect the surplus to rise in the first half of 2022.
This uncertainty has kicked off speculation activities and resulted in volatility.
Since the peak reached in August 2020 following the outbreak of COVID-19, Asian inventories, crude and products, have been declining at a steady pace. Looking ahead, Asian stocks are expected to continue falling for the remainder of this year as global demand is expected to outpace total supply in the coming months; however, the surge in omicron cases could limit the downward trend in Asian inventories.
Crude oil prices suffered elevated volatility due to which prices ended higher this week, supported by easing worries about oil demand after initial data shows that the early cases of omicron variant have been mild and less severe than anticipated, and existing COVID-19 vaccines are reported to be effective against the new variant.
However, oil prices rally slowed on weaker-than-expected US jobs report and after the Energy Information Administration’s weekly data showed a smaller-than-expected draw in US crude stocks and a large build in gasoline and distillates stocks last week.
Oil prices followed the decline in equity markets, as the rapid rise of COVID-19 cases, particularly in Europe, revived concern about more government restrictions. Some governments imposed tougher restrictions, which likely prompted profit taking. Worries about China’s economic outlook following rating downgrades to two large Chinese property developers also weighed on market sentiment.
India’s fuel consumption fell in November after reaching a seven-month peak in October, government data showed, as demand eased following the festival season.
Refinery margins also rose in all main trading hubs. Improvement were attributed to a decline in crude prices, as well as growing market optimism linked to fuel consumption, as concerns surrounding the impact of omicron virus started to diminish.
Global refinery throughput is expected to continue rising in December on seasonal demand, which will support the physical crude market. China’s crude imports rose to a three-month high in November.
Expectations of arrivals remaining at current levels until late January would result in more crude demand. The recent data underscored the relative weakening in Europe’s biggest economy, showing a decline in factory orders. This trend is expected to continue and may lead to reduced demand.
The news about a mild severity of omicron will probably support the oil market and prompt money managers to raise net-long positions following several weeks of cuts.
• Mohammed Al-Shatti is a Kuwaiti oil analyst.