Rystad Energy: Oil Steady as Economic Recovery Weighs Against High Inflation and Rising Inventory
Oil prices have found something of an equilibrium today as Omicron-related concerns wane and the hopes of a robust economic recovery grow, but inflation and inventory levels are keeping prices in check.
Although uncertainty remains, Omicron concerns continue to wane, and many market watchers are betting that the end of the pandemic is closer now than at any point since its onset.
The US market is in a holding pattern following mixed signals from the EIA yesterday, with crude inventory sinking to three-year lows but gasoline stockpiles rising more than anticipated.
Although the fall in crude inventory was expected, rising gasoline stockpiles helped by further SPR releases by the Biden administration have helped level off prices.
It remains to be seen whether this balance will last or if more bullish sentiment will return as the economy rebounds in the coming weeks.
Brent’s march to close near the $85 per barrel mark is a signal of Europe’s economic and oil consumption progress expectations for 2022, buoyed in recent days by the lifting of movement restrictions by countries on the continent, where governments are treating the Omicron variant as less life-threatening than previous strains and more as a flu-like virus instead of a health crisis, despite record-high cases.
However, downside risk remains as the demand for refined products continues to slump, keeping prices in check.
Although the response to rising Covid infections in the US and Asia could hardly be more polarized, both are posing a more significant downside risk to oil consumption than witnessed in Europe.
Oil demand has slumped in China as it continues to follow its zero-tolerance policy of shutting down local regions over singular outbreak cases of the Omicron variant.
In the US, record infection rates have forced many businesses and schools to close as workers recover from the virus, weighing on the demand for gasoline and other road fuels.
January typically brings a period of weak demand, and 2022 should be no different, with Europe and Asia already experiencing significant declines in diesel consumption since the turn of the year.
