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(MENAFN – DailyFX)
The price of oil could face a bear market in the first quarter of 2022, as it drops nearly 20% from the 2021 high ($ 85.41). At the same time, expectations of stronger demand as well as ongoing supply constraints could keep crude prices afloat as the Organization of the Petroleum Exporting Countries (OPEC) plans to “adjust to the increases overall monthly production by 0.4 mb / d for the month of January 2022. ”
OPEC maintains optimistic outlook for global oil demand
The upward trend in oil prices appears to have unwound as US President Joe Biden pledges to work with China “to tackle global energy supplies.” Meanwhile, the rapid spread of the Omicron variant may produce headwinds for crude as a growing number of countries restore travel as well as social resistance in response to increasing cases of COVID-19.
However, OPEC and its allies do not appear to be deterred by the new tension, as the Monthly Oil Market Report (MOMR) of December 2021 points out: “Oil demand in 4Q21 has been adjusted slightly downward mainly for take into account the COVID-19 containment measures in Europe and their potential. impact on transport fuel demand, as well as the emergence of a new COVID-19 variant (Omicron). ”
As a result, “total world oil demand is expected to reach 96.5 mb / d on an annualized basis in 2021”. The report goes on to say that “in 2022, the growth in world oil demand also remained unchanged at 4.2 mb / d and total world consumption at 100.6 mb / d”.
The optimistic outlook is based on the assumption that “the impact of the new Omicron variant is expected to be mild and short-lived as the world becomes better equipped to handle COVID-19.” Expectations of strong demand could keep OPEC and its allies on track as the group takes a phased approach to restore production to pre-pandemic levels.
Slow recovery in US oil production to keep crude production well below pre-pandemic levels
Forecasts of strong demand along with OPEC’s gradual approach to restore production could help crude avoid a bear market, and developments from the United States could keep the price of oil afloat in a context of slow recovery of crude production.
Source: US Enegry Information Administration
US production has recovered from the disruptions caused by Hurricane Ida, with production falling to 10,000 in September. Recent figures from the Energy Information Administration (EIA) show that weekly field production held steady at 11,700,000 during the week ending December 10, which remains well below the record 13,100,000 in March 2020.
In summary, the growing response to the Omicron variant may cause the price of oil to fall in the short term, but the price may avoid a bear market as the forecast of strong demand is met by a timid recovery in global supply.
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