While OPEC expects a strong growth in oil demand next year, despite the emergence of the Omicron variant, both the International Energy Agency (IEA) and Energy Information Administration (EIA) downgraded their 2022 demand forecasts. Since Joe Biden announced the release of US Strategic Petroleum Reserves (SPR), crude oil price (Brent) has declined by more than USD 10 per barrel.
However, despite the optics, the market is not in crisis but is correcting itself as the warnings of market tightness in October turned out to be premature especially when OPEC+ spare capacity is above average and the pandemic is far from being over. Besides, even at current levels (USD 70-75 per barrel) prices have come a long way.
A lot of uncertainty continues to surround the impact of the Omicron variant, although early data is showing that despite a high rate of infection, the related death rate is much lower compared to other strains. The severity of government response will dictate the impact on oil demand particularly if travel and mobility are curtailed.
On the outlook for Libya, Dr Nakhle stresses that typically oil production, in major oil producers that have faced wars and political unrest take a long time to recover to pre-crisis levels. For instance, it took Iraq more than 40 years to hit and exceed the pre-war output. From this perspective, we shouldn’t expect any surprises from Libya as the political situation is still fragile leading to a fluctuating output.
Watch the full discussion (in Arabic):
“Major risks for energy markets in 2022“, Dr Carole Nakhke, Dec 2021
“Global Economy and Energy Markets Weekly Commentary – 12th Dec ‘21“, Christof Rühl, Dec 2021