Rystad Energy: Oil Prices Rise on Supply Tightness and Positive Demand Projections
After two days of declines, oil prices are rising today, buoyed by positive demand signals for 2022 and an expectation of global supply tightness.
The global demand outlook for 2022 is solid, as many countries keep their borders open and avoid implementing the strict lockdowns imposed during previous Covid-19 waves on news that Omicron is a less severe strain for most who contract it.
An announcement later today from the API is expected to reveal a seventh straight week of inventory declines in the US, handing the market another bullish signal and potentially pushing WTI higher past the $80 mark.
An improving supply outlook in Libya and Kazakhstan should, in theory, have a bearish impact on prices, but the market either believes the outages in Libya will be back or that demand growth will outpace the few thousand barrels at risk as the political situation remains shaky after the delayed presidential election original set for December 2021.
Kazakh president Kassym-Jomart Tokayev’s announcement that protests in the country are stable across all regions should dampen supply concerns over the country’s 1.7 million bpd in crude production.
In Asia, China’s decision to lock down the city of Anyang following the detection of an Omicron case could indicate the country’s return to a strict zero-tolerance policy ahead of the Olympic Games in February and carry further downside risk to oil consumption in the region.
Despite the scattered lockdowns and movement restrictions due to Omicron, the impact on road and jet fuel has been marginal, and the data has been inconclusive, as the height of the impact coincided with the holiday season.
Last week, Asia saw road traffic activity drop by 5%, a microcosm of the general trend of road traffic dropping 10% globally in the past week when compared to 2019 levels.
The drivers are a combination of a post-holiday lull and the Omicron variant keeping many working from home.
Demand for jet fuel, which took a more significant initial hit with the Omicron announcement, is now seeing slight recovery gains across North America, Asia and Europe.
