Less Omicron Worries Equal More Price Gains For Oil As New Year Draws Closer

Analysts anticipate a robust start for demand in 2022: File Image/Pixabay

With yet more gains for oil prices on Thursday (the seventh straight daily gain and the longest run of increases in 10 months), the commodity inched closer to achieving the biggest annual advance in over a decade – thanks the omicron being far less severe than feared and demand recovery therefore staying largely on course.

Pavel Molchanov, an analyst at Raymond James & Associates Inc., said, “Consumer behaviour and the overall economy is in good shape, and ultimately that’s what matters more for oil demand.”

Jens Pedersen, a senior analyst at Danske Bank, added that the the market’s lack of reaction to omicron “bodes well for demand to start 2022 [and] further suggests OPEC+ [the Organization of the Petroleum Exporting Countries] made the right call to stick to its plans of further normalizing production.”

West Texas Intermediate rose 43 cents to settle at $76.99 per barrel, while Brent for February gained 9 cents to settle at $79.32; the more active March contract for Brent rose 32 cents to $79.53 per barrel.

With regard to OPEC, it and its allies will gather next week to assess the state of the market and review supply policy into 2022, and sources told media that they will probably stick to their existing policy of modest monthly increases in oil output, as demand concerns due to omicron ease and prices continue to recover.

Meanwhile, while it may seem that OPEC has for the last year dominated the oil market, Daniel Yergin, vice chairman of IHS Markit, on Thursday pointed out that U.S. crude output could rise by as much as 900,000 barrels per day (bpd) in the New Year.

He said, “For the last year, year and a half, it’s been OPEC+ running the show, but U.S. production is coming back already, and it’s going to come back more in 2022.”

Also on Thursday, some analysts noted an emerging development in China that capped prices and could influence further trading: the world’s biggest oil importer lowered the first batch of 2022 import quotas to mostly independent refiners – also known as teapots - by 11 percent.

A Singapore-based analyst told media, "Market sentiment weakened on worries that the Chinese government could take stricter actions against the teapots."