Oil prices are expected to sustain a steady upward trend this year as Omicron is unlikely to cause any massive dent in crude demand while supply worries will support the prices in near term, experts say.
Crude prices, which gained nearly 60 per cent in 2021, edged up during the first trading week of this year. Global benchmarks Brent and WTI registered gains of more than five per cent in the first week of the year, with prices at their highest since late November, as supply concerns overtook worries that the rapid spread of the Omicron coronavirus variant might hurt demand.
Benchmark US West Texas Intermediate (WTI) crude oil for February ended at $78.90 a barrel while Brent crude for March delivery closed at $81.75 a barrel on Friday.
Earlier, Brent crude hit $82.01 and WTI traded at $79.29 a barrel.
“Oil prices rose after the unrest in Kazakhstan threatened oil supplies. The country is home to major crude extraction and transport facilities and investors are concerned that the social troubles could affect actual output and delivery capacity,” Wael Makarem, senior market strategist for Mena region at Exness, told Khaleej Times.
Vijay Valecha, chief investment officer, Century Financial on Global Markets, said oil prices registered third consecutive weekly gains.
“With current weekly gains of more than five percent, benchmarks are fast approaching their October highs. The current strength in energy prices can be largely attributed to the overall supply tightening narrative. Reports of supply disruptions in North America and Kazakhstan have shifted the focus back to tightening supply,” he said.
He said much of Western Canada has been in the middle of a deep freeze for the past two weeks.
“Due to extremely cold conditions, US-North Dakota’s Bakken field’s oil production has also been crippled. Kazakhstan is currently under immense turmoil as political protests damage the overall economic scenario. Saudi Arabia has cut the prices of all the crude grades it will be selling to Asia in February to the lowest premium seen over the past three months.
This comes on the back of higher Opec+ supplies and fears of further Omicron spread. WTI and Brent support is seen at $77 and $80 levels, respectively. On the upside, resistance is seen at $81.50 and $84 levels, respectively,” Valecha told Khaleej Times.
3-year high prices
Brent’s 2021 annual average of $71 per barrel is the highest in the past three years. The price of WTI crude oil traced a similar pattern to Brent and averaged $3 per barrel less than Brent in 2021. The spot price of Brent crude oil started the year at $50 per barrel and increased to a high of $86 per barrel in late October before declining in the final weeks of the year.
Dayanand Mittal, oil and gas analyst at JM Financial Institutional Securities, said petrol prices should normalise after March and April.
“Oil prices in the near-term should stay supportive but from a medium- to long-term prices should moderate,” Mittal said.
Rystad Energy analyst Louise Dickson said the upward jump in oil prices mostly reflects the market jitters as unrest escalates in Kazakhstan and the political situation in Libya continues to deteriorate and sideline oil output.
Omicron concern eases
Experts said latest Covid variant Omicron is unlikely to cause an adverse impact on crude oil demand and economic activity.
“The concerns about a massive slump in oil demand have faded now that it has become clear that Omicron leads to milder forms of the disease than previous variants of the virus, meaning that massive mobility restrictions are not likely,” said Commerzbank analyst Carsten Fritsch.
Meanwhile, supply additions from the Organisation of the Petroleum Exporting Countries (Opec), Russia and allies — together called Opec+ – are not keeping up with demand growth.
Opec’s output in December rose by 70,000 barrels per day from the previous month, versus the 253,000bpd increase allowed under the Opec+ supply deal which restored output slashed in 2020 when demand collapsed under Covid-19 lockdowns.
Production in Libya has dropped to 729,000 barrels per day from a high of 1.3 million bpd last year, partly due to pipeline maintenance work.
Source: Khaleej Times