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OPEC: ‘Robust’ oil demand to overcome Omicron threat

Oil hits 7-year highs on recovery hopes, unrest

PARIS: Global demand for oil is expected to remain “robust” in 2022 and overcome short-term disruption caused by the Omicron coronavirus variant, the Organization of Petroleum Exporting Countries said yesterday. But the Saudi-led group of top oil producers warned future virus strains and pandemic-related travel restrictions could threaten the global economic recovery. The positive forecast comes as prices for the benchmark Brent crude oil reached their highest level since 2014.

Omicron’s rapid worldwide spread forced countries to reimpose travel bans and social restrictions following its emergence in November. Studies have since suggested the highly transmissible variant causes less severe illness, providing optimism for a sustained economic recovery in 2022 driving demand for oil. OPEC’s monthly oil market report provided a “robust oil demand forecast”, with its estimate for growth of demand unchanged from previous predictions at 4.2 million barrels per day in 2022.

Total global consumption is expected to reach 100.8 million barrels per day this year. OPEC predicted Omicron’s impact “to be mild and short-lived” but said “uncertainties remain regarding new variants and renewed mobility restrictions, amid an otherwise steady global economic recovery”. Although “supply chain bottlenecks, ongoing trade issues and their impact on industrial and transportation fuel requirements remain key factors of uncertainty”, the report said the oil market “is expected to remain well-supported throughout 2022”.

Meanwhile, oil prices traded at the highest levels in more than seven years yesterday, in part on hopes of a global economic recovery ramping up demand. Stock markets headed south with US Treasury yields surging on expectations the Federal Reserve will have to unveil several interest rate hikes to tackle a worrying spike in inflation. Expectations of Fed tightening continued to support the dollar.

European crude benchmark Brent North Sea reached $88.13 per barrel, while US contract WTI hit $85.74 — the highest levels since October 2014. Also supporting prices was the claim of an attack by Yemen’s Houthi rebels in Abu Dhabi that triggered a fuel tank blast killing three people Monday, with the group warning civilians and foreign firms in the United Arab Emirates to avoid “vital installations”.

The news fuelled concerns about supplies from the crude-rich region. “The suspected drone attack in Abu Dhabi underscores the ongoing threat against civilian and energy infrastructure in the region amid heightened regional tensions,” said Torbjorn Soltvedt at risk intelligence company Verisk Maplecroft. “Reports of damage to fuel trucks and storage will concern oil market watchers, who are also keeping a close eye on the trajectory of ongoing nuclear talks between the US and Iran,” he added.

OANDA analyst Craig Erlam said OPEC nations and other key producers struggling to meet targets to lift output by 400,000 barrels a month was adding to upward pressure. “The evidence suggests it’s not that straightforward and the group is missing the targets by a large margin after a period of underinvestment and outages,” he noted.

“That should continue to be supportive for oil and increase talk of triple-figure prices.” Hopes for more monetary easing by major consumer China to reinforce its stuttering economy were also seen as a key support for the oil market. As for equities, following an almost uninterrupted rally since the early days of the pandemic, stock markets are showing signs of leveling out as global finance chiefs shift from economy-boosting largesse to measures aimed at reining in inflation.

Still, there is an expectation that equities will enjoy further gains this year as countries reopen and people grow more confident about travel as concerns ease over the Omicron coronavirus variant. Analysts are also watching the corporate earnings season that is under way, with hopes that firms can match their stellar performances last year. – AFP

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