Oil prices in 2022 might not reach the high levels of last year
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The year 2021 witnessed an upward shift in the price of oil globally, reversing the falls of previous years.
After trading at around $85 per barrel in late October, Brent oil fell sharply in November to $69 per barrel by early December. It rebounded thereafter and is currently trading in the upper $70s.
Looking ahead to 2022, oil prices are not expected to reach those highs as energy supply is expected to grow faster, catching up on 2021 demand as well as meeting the additional demand growth for 2022.
The market’s main focus will be on the upcoming OPEC+ meeting that will be held on Jan. 4, even though it is widely expected to maintain the existing policy of a 400,000 barrel per day increase in output each month.
Despite the recent dramatic spread of the COVID-19 omicron variant, crude market sentiments have been improving lately, as most governments are appearing to be more inclined to protecting their economies by imposing lenient mobility restrictions, rather than resorting to total lockdowns.
Omicron can be expected to have a lower impact on global economic growth, although the aviation sector could take a hit as the number of cases further increases across the globe.
Potential global supply disruptions will also give oil prices additional support, similar to the force majeure interrupting Libya’s Al-Zawiya and Mellitah terminals, Ecuador’s heavy rains that led to the closure of several of its oil production facilities and the interruption of Shell Forcados exports in Nigeria last week after a malfunctioning barge blocked tanker access.
Natural gas prices in Europe remain high following a recent surge, squeezing margins for refiners dependent on purchasing natural gas at spot prices.
Refining margins have been rather strong in both European and Asian markets lately, brushing aside the weakness seen in early December as the downstream segment appears to have shrugged off fears of omicron having a major impact on demand.
In fact, margins rebounding to strength are essentially a reflection of refiners’ concerns which triggered lower run rates. While demand remains robust, refining profitability should weaken further down the road once shortages are alleviated.
In 2022, supply will catch up and even exceed demand growth. The rise in supply will be driven by an increase in LNG exports, a rebound in US shale oil, gas and NGLs and the return of investment in non-OPEC production.
Like China, India has recently preferred crude from the East of Suez over the West of Suez. Indian appetite for Middle East barrels seems to continue this month, with several Indian refiners snapping up cheap February-loading barrels.
Looking ahead, it seems that Indian crude buying will remain strong ahead of expected higher fuel demand.
• Mohammed Al-Shatti is a Kuwaiti oil analyst.
