New Year Kicks Off With More Oil Gains And Growing Analytical Confidence

Meanwhile, Libya scrambles to restore stalled output: File Image/Pixabay

The first trading day of the New Year saw crude prices climb by over 1 percent, influenced by an expected drop in output from Libya and confidence in a positive outcome of a Tuesday meeting of the Organization of Petroleum Exporting Countries (OPEC).

Following the cartel cutting its estimate of the surplus in global oil markets this quarter and with expectations it would ratify another modest output revival of 400,000 barrels per day (bpd) in February, West Texas Intermediate on Monday wobbled between gains and losses until topping $76 per barrel.

Brent settled up $1.20, or 1.5 percent, at $78.98 per barrel, while WTI settled up 87 cents at $76.08 per barrel.

OPEC predicted a surplus of 1.4 million bpd in the first three months of 2022, about 25 percent smaller than it estimated a month ago, according to internal research, with an average full-year surplus of 1.4 million bpd instead of the 1.7 million estimated last month.

Ryan Fitzmaurice, a commodities strategist at Rabobank, remarked, "Oil demand is widely expected to set new all-time highs above the 100 million barrel a day mark in 2022, [and] the global supply-demand balance is expected to remain tight."

Libya's woes were due to a damaged pipeline, which depending on the length of repair could cause output to fall to the lowest in over a year; this comes on the heels of the militia shuttering Sharara, the country's biggest oil field.

Also, with dramatically falling Covid hospitalization rates in the U.K., South Africa, and other countries, omicron is fulfilling the expectations of scientists of being a less severe and more transient strain, perhaps signalling the end of the pandemic and causing little by way of demand impact.

This was also the consensus of analysts who expressed concern over the record number of infection rates omicron is causing in many countries: Tamas Varga, analyst at PVM, said, "Infection rates are on the rise globally, restrictions are being introduced in several countries, the air travel sector, amongst others, is suffering, yet investors' optimism is tangible."

To which Giovanni Staunovo, commodity analyst at UBS, added, "Crude and oil product prices should benefit from oil demand moving above 2019 levels; we expect Brent to rise into a $80–$90 range in 2022."