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While the Omicron fears may have subsided having earlier jolted global oil prices, the bulls may still be far away from making a strong and meaningful comeback. Or at least not just yet. Latest commentary from key oil market observers hints that the market equilibrium, which earlier was slated to be achieved by Q1 2022, may still be far. Oversupply is expected to continue and shall remain the overarching theme till 2H 2022.

The US Energy Information Administration, in its latest short-term energy outlook report has lowered the global oil demand estimate by 0.65 million barrels a day, cutting the price forecast by $1.86 for 2022 to $70/bbl. Recall that global oil demand has exceeded oil production for six quarters in a row, with petroleum stock withdrawals averaging 1.7 million barrels a day.

“These stock builds should contribute to downward pressure on crude oil prices, and our Brent forecast averages $71/b in 2Q22, $70/b in 3Q22, and $67/b in 4Q22. Growth in production from OPEC+, of US tight oil, and from other non-OPEC countries will outpace slowing growth in global oil consumption, especially in light of renewed concerns about COVID-19 variants”, says the EIA Energy Outlook report.

The WTI and Brent prices are now expected to average $70/bbl and $68/bbl as Opec Plus countries have shown the resolve to continue the planned production increase, despite concerns around demand emanating from Omicron. Morgan Stanley also cut the price forecast by more than 5 percent for 2022, although it expects Brent to average north of $77/bbl, signaling early signs of equilibrium.

Opec has maintained that the roadmap of phasing out of oil as the world’s primary fuel source has little clarity and that oil should remain the key fuel for at least another 25 years. The US producers hold the key to combat any significant upside risk to oil price, given the ever-rising spare capacity and sufficient inventory.

The likes of Pakistan can take heart from the revised projections from key market watchers, as Pakistan’s fuel import bill has wreaked havoc on the balance of payment, in addition to fueling inflation despite low fuel taxes. If the Omicron proves not as threatening as it was thought earlier, oil prices could push back towards $80/bbl, as Opec producers have shown exemplary resolve in maintaining discipline, and sticking to the production quotas.

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