A new variant and surge in COVID cases globally have toppled the gains made by the crude oil price in the last two years. With the emergence of Omicron variant the knee jerk reaction in oil prices was again witnessed; earlier this week, crude oil prices took a dive as Omicron fears spooked markets of the possible closures and lockdowns measures. The pandemic has brought volatility to oil prices, and once again oil market prospects have come under scrutiny as countries increase restrictions amid rising cases.
However, despite the threats of Omicron variant and the punch to prices recently, the oil prices have not tanked as much as they did with previous surges and variants. Maybe it’s a little early to understand what’s keeping oil prices less jittery to the threat, but this is also reflected in the kind of stance the experts, analysts and producers have about the impact of the variant spread on the oil market.
The market seems more optimistic this time, partially because many believe that the limitations and restrictions will be temporary because of vaccination and boosters drives, and partially because of how they have learnt over the course of two years to manage with raging pandemic. There are predictions that crude oil could cross $100 per barrel next year despite the demand destruction created by Omicron.
Largely, the impact of Omicron is being taken as a temporary event- not extending beyond a couple of months into 2022. Though IEA has slashed demand forecast for the first quarter of 2022 to address the immediate threat from Omicron, it has highlighted recently that the impact of the Omicron variant would likely be more muted than previous waves and wouldn’t’ upset the current demand recovery.
OPEC increased its forecast for global oil demand in the first quarter substantially as the risk from the new virus strain has remained restricted. It has boosted its estimates for consumption for the beginning of 2022 upward too. Apart from the demand side, the supply side is also favoring prices surge. Supply issues in Libya and declining oil inventories in the US have also pushed prices higher.