Oil Drops as Omicron-induced Restrictions Hurt Demand

By Adedapo Adesanya

Oil fell on Friday ending the week in the negative as surging cases of the Omicron coronavirus variant raised fears that new restrictions may hit fuel demand.

The Brent crude declined by $2.09 or 2.79 per cent to settle at $72.93 per barrel, while the United States West Texas Intermediate (WTI) crude depreciated by $2.25 or 3.11 per cent to trade at $70.13 per barrel.

In the week, Brent and WTI lost 1.4 per cent despite prices going up on Wednesday and Thursday, following a bullish inventory report from the Energy Information Administration (EIA) showing falling US crude inventories and a record petroleum demand in America for the week to December 10.

The recent spike in COVID cases is set to slow demand recovery in the coming weeks, with jet fuel demand most affected.

The United Kingdom reported a record number of daily new COVID cases while Germany warned of a massive fifth wave with Omicron infections, while cases are rising in the US too, with Omicron spreading fast.

In Denmark and South Africa, the number of new Omicron cases has been doubling every two days with Denmark’s Prime Minister, Mr Mette Frederiksen warning that the government may impose further curbs to limit its spread.

Analysts noted that Omicron developments continue to impact the short-term demand outlook for oil.

Due to new restrictions on international travel, there have been revisions on demand growth forecast for both this year and next.

The Organisation of the Petroleum Exporting Countries and allies (OPEC+) could meet before the earlier scheduled January 4 meeting.

This is dependent on if changes in the demand outlook warrant a review of their plans to add 400,000 barrels per day of supply in January.

The US oil rig count, a leading indicator of output, rose in the week, prompting concerns of potential oversupply. The oil and gas rig count rose by three to 579 in the week to December 17.

However, despite the Omicron threats to demand, investment bank, Goldman Sachs said on Friday the new variant has had limited impact on mobility or oil demand, adding that it expected oil consumption to hit record highs in 2022 and 2023.