OPEC doesn’t expect Omicron to reduce demand for oil

Text size

A Saudi Aramco oil installation in the Red Sea city of Jeddah in November 2020.

Fayez Nureldine / AFP / Getty Images

OPEC doesn’t expect the Omicron variant to slow demand for oil next year, and it sees U.S. supply growth slowly returning – a sign the cartel expects to remain firmly in charge. the direction of oil prices and that they will remain high.

Given that OPEC has shown interest in keeping prices above $ 60 a barrel, this is good news for oil producers, who can continue to pump cash and fund their growing dividends to these. levels. In the absence of a Covid outbreak or a much more severe economic downturn, high prices are expected to persist.

On Monday, oil prices were down slightly, with


Brent raw,
the international benchmark, down 0.6%, to $ 74.72 per barrel. West Texas Intermediate crude, the US benchmark, fell 0.5% to $ 71.34 per barrel. Oil stocks have also declined, with


Chevron

(ticker: CVX) by 1.3%.

Over the past month, oil stocks have held up better than oil prices – Chevron is stable, for example, even as commodity prices have fallen by more than 10%. OPEC notes that traders have unwound some of their bullish bets on West Texas Intermediate prices in recent weeks, even before Omicron’s announcement. But some oil stocks have attracted investors, given their strong dividend yields and progress in cutting costs.

OPEC monthly market analysis offers a bright picture of oil supply and demand next year, with demand returning to pre-pandemic levels and supply increasing only slightly. While the Omicron variant has global health authorities on edge, the OPEC report says its impact “is expected to be mild and short-lived, as the world becomes better equipped to deal with Covid-19 and its related challenges. “. On the contrary, Omicron could put the brakes on holiday travel, pushing some demand from Q4 2021 to Q1 2022.

OPEC has had a few tumultuous years in which it lost part of the control of the oil market to American producers pumping oil from shale. But the group takes back the controls. U.S. producers have cut oil production because investors want them to be smarter about drilling and only producing from their best wells. OPEC was therefore able to manage the market without risking losing further market share to non-OPEC producers.

For 2022, OPEC expects average consumption of 100.8 million barrels per day, compared to 96.6 on average in 2021 and in line with pre-pandemic demand. In the fourth quarter of 2022, demand could reach 102.6 million barrels, which would far exceed 2019 levels.

The United States will likely increase production next year, but not enough to change the path of oil, according to the report. U.S. producers will likely add 0.65 million barrels per day of crude in 2022 on average, and end the year at 12.8 million barrels per day, still below the 13 million barrels at its peak before the pandemic.

Write to Avi Salzman at avi.salzman@barrons.com


Source link

Felix J. Dixon