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OpinionsOmicron adds new uncertainty to Global Oil outlook

Omicron adds new uncertainty to Global Oil outlook


But Cartel refuses to back down from additional supply

By K Raveendran

With the omicron variant of coronavirus is spreading at unprecedented rates,  creating new records for the intensity of infection, the oil market is seeing greater uncertainty as assessment of the market outlook is being constantly overridden by the fast pace of developments.


Many countries, even those with robust vaccination rates, are experiencing surges in covid cases and ICU bed utilization levels, triggering renewed concerns and emergency healthcare measures that could hamper oil recovery, and in turn crude prices.

As omicron spreads at blistering speed, the United States has reported more than one million new covid cases on the first day after the long New Year's weekend. Similarly, reports from London say British hospitals have switched to a ‘war footing' due to staff shortages caused by a wave of omicron infections, as the country's daily covid caseload breached 200,000 for the first time.

The Indian case is little different. Daily spikes in the number of new infections are exceeding even 50 percent, which would mean the infection could double any time soon. States and cities have already tightened measures to restrict movement, which does not add any optimism to the global oil outlook.

All over the , the new developments have forced more people to stay home and affected travel and other plans, creating immediate impact on the demand for fuel. As the news of omicron's spread began to appear, it was believed going by the nature of the virus attack that its destructive potential as far as the oil markets are concerned may not be as worse as originally feared. This prompted oil markets to go about their as if the impact would not be much.

But with more countries witnessing multiplication of the new variant way beyond the expected levels, restrictions are coming back with a vengeance, raising fears that the global market may yet be adversely impacted, and consequently causing a bearish for oil prices.

Due to the transitory implications, it has been taken for granted a consequent effect on prices will be inevitable and that fundamentals of a weakening physical oil market are creeping into futures pricing, brushing away the optimistic buying spree that was noticed earlier.

The monthly meeting of OPEC-plus to take stock of the situation has not produced any surprises, with the cartel sharing optimism that the situation would help oil to trade higher. Such realisation is behind the decision to ratify another 400,000 bpd increase in production targets for February, but at the same time keeping the door open to change course should market conditions worsen.

The cartel's technical committee presented a less over-supplied outlook for the oil market in 2022 against its own assessment of bigger oversupply last month, which seems to have pleased the bulls to add certain price premiums.

The group now exudes confidence that the market can take further increases in supply. Brent prices have recovered close to $80 after dropping below $70 in early December and real-time transportation data globally suggests there has not been any significant impact on oil demand thus far from omicron.

But news reports coming from China are throwing a spanner into the works of OPEC. As such all eyes are on the Chinese over growth and inflation concerns and their potential impact on oil demand. The headline news of Fitch downgrading Evergrande to ‘restricted default' exacerbates the Chinese GDP growth fears and ultimately could impact the oil buying appetite of the world's biggest crude customer. Elevated inflation rates could stall China's economic growth momentum, potentially triggering a governmental discussion on economic stimulus measures in 2022.

If realized, such weakened growth in China would likely cause a decrease in crude imports and refinery intake in the country, paving the road for a potential oil price slide. Loadings to China of Saudi Arabian crude for January 2022 are already signalling a weakening physical market. This lack of extra demand for crude in China could also signal to Saudi Aramco that the recent bumps in official selling prices were an unjustified exaggeration. (IPA Service)


The Northlines is an independent source on the Web for news, facts and figures relating to Jammu, Kashmir and Ladakh and its neighbourhood.


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