The Organization of the Petroleum Exporting Countries will meet with its Russian-led allies, a group known as OPEC +, on Thursday. They will discuss how to assess the potential impact of the Omicron variant on crude demand, as well as steps the United States and other countries are taking to tap their strategic oil reserves to cool skyrocketing prices. The current plan is to add 400,000 barrels of crude per day to world markets.
“OPEC + faces bearish unknowns as it tries to deal with what’s going on with the Omicron variant,” said Louise Dickson, senior analyst at Rystad Energy.
Oil prices saw the biggest daily drop – $ 10 a barrel – since March 2020 on Friday, as news of the Omicron variant grabbed the headlines, stoking fears of new coronavirus restrictions sapping business. Several countries have already adopted a new wave of travel restrictions. Concerns are also high about the effectiveness of current COVID-19 vaccines against the new variant.
Oil recovered some of those losses on Wednesday as the market turned to the OPEC meeting. Global benchmark Brent crude stabilized 0.75% at $ 68.71 a barrel, while US West Texas Intermediate (WTI) crude futures traded down 1.21% at 65 , $ 38. But they still haven’t hit the highs of October, when a global energy crisis saw Brent hit $ 86.70 per barrel and WTI $ 84.65 per barrel.
Huile & Omicron
The oil, stock and even cryptocurrency markets were rocked after the World Health Organization said on Friday that Omicron was a “worrying variant.” The news has raised fears that restrictions undermining business to contain the spread of the virus will be reintroduced and slow the global economic recovery.
For oil exporters, this means that the insatiable appetite of recent times for crude may be curtailed.
“OPEC + has been relatively cautious on demand for oil, saying demand is still fragile and weak,” Dickson said. “I think the market sentiment right now is that if this is another Delta type variant, there could be an extreme drop in consumption of oil demand. “
Rystad Energy’s baseline scenario is that the group will either maintain its 400,000 barrels per day increase or reduce it slightly.
Global health authorities are rushing to try to better understand Omicron, while manufacturers of COVID-19 vaccines have started trials to assess the effectiveness of their current jabs against the new variant.
In this context of uncertainty, OPEC + is still expected to make a political decision by Thursday.
“We understand that Omicron is primarily a jet fuel story, but it will be about two weeks before we know how effective the vaccine is in combating it,” said Reed Blakemore, deputy director of the Atlantic Council.
Strategic petroleum reserve
The headline of the last OPEC + meeting was its snub to US President Joe Biden’s request to pump more oil to cool scorching oil prices. Since then, the United States, in tandem with other countries, has tapped its own Strategic Petroleum Reserve, a national stockpile of crude ready to be accessed in the event of an emergency, including shortages and rising prices.
US Department of Energy Assistant Secretary David Turk said on Wednesday that Biden would reconsider or delay mining more reserves if prices cooled. Inventories of crude oil at US hubs have increased recently.
Analysts now say that the mildly assertive rhetoric between oil-importing and exporting countries that existed two to three weeks ago has subsided, and that the recent rise in oil prices was the result of growing demand as the world is coming out of COVID-19, so is a lot of market optimism about the future.
But the release of oil from strategic reserves has driven prices down at least in the short term, Blakemore noted. And now Omicron has served as a sobering reminder of how unpredictable the pandemic can be.
“Omicron clouded the mood in the market which was bullish on demand,” Blakemore said.
Dickson agrees. “Our position three to four weeks ago was that Biden should wait [to tap the strategic reserves] because the market forces were turning bearish on their own. We thought the market would recover, which it more than did. ”