Oil has started off on a positive note in 2022 so far, with robust demand continuously exceeding market expectations and Omicron fears waning, OilPrice said.
Even though there has been a relative lack of major developments in the market, partial supply disruptions in Libya and Ecuador have kept markets tighter than expected, pushing oil prices above the $80 per barrel mark. Initial production data seem to suggest that the gap between OPEC+ quotas and actual production keeps on widening, with a recent Platts survey hinting that December additions amounted to only 310,000 b/d. A total of 14 counties (out of the 18 nations participating) failed to hit their production targets in December, including Russia whose crude output has been stagnating for a couple of months already.
The limited impact of Omicron on markets compared to all previous COVID variants has been the main bullish factor for oil prices in 2022, with demand continuously proving skeptics wrong. This week finally brought a resolution to Libya’s prolonged infrastructure blockade yet it will be weeks before we see production and exports back at levels they were before December 2021. That being said, global inventories are still low and there has been little change on that front recently. News of European stocks dropping 11% month-on-month in December, as well as the tacit anticipation of US crude inventories seeing their seventh consecutive weekly draw, is only adding to bullish sentiment, OilPrice reports.
Policymakers are still debating when and how to exit from exceptional measures imposed to control the epidemic and move on towards treating it as endemic. But financial markets have already made that adjustment. As the link between confirmed cases, hospitalisations and deaths has weakened, governments are imposing fewer emergency controls to arrest transmission. Traders are betting governments, businesses and households are now more prepared to live with high rates of virus in circulation. Oil prices, airline shares and U.S. Treasury debt all show signs of decoupling from surging coronavirus cases – implying waves of infection are no longer seen as the dominant factor in the economic and financial outlook, John Kemp (Reuters) said.