Jan 5, 2022 - Energy & Environment

Crude oil is shrugging off Omicron

Gif of an oil barrel on a spring.

Illustration: Aïda Amer/Axios

The OPEC+ decision Tuesday to press ahead with another production boost next month signals confidence that spreading COVID-19 cases won't become a huge drag on demand.

Catch up fast: The coalition of OPEC, Russia and allied producers, as expected, stuck with plans to continue the monthly increases of 400,000 barrels per day.

The big picture: "The additional supply is a signal ... that there is continued cohesion within the producer group that oil demand will continue to grow despite the recent Omicron variant causing some restrictions," Third Bridge analyst Peter McNally said in a note.

Zoom in: Barclays' Amarpreet Singh said the demand effects of Omicron are below even the "mild" scenario, one of three they modeled.

  • "The mild scenario assumed that the high level of protection against severe outcomes would be largely preserved, which has been the case so far," Singh writes.
  • The note predicts a full-year demand hit of around 100,000-200,000 barrels per day, concentrated mostly in Q1.
  • In addition, prices are boosted by other forces tightening the market, with unplanned outages in Libya and disruptions and operational problems in Nigeria, he writes.

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