Crude oil prices have staged a two-day decline as the growing impact of omicron dampened the bullish outlook from OPEC’s December report.
OPEC on Monday reaffirmed its view that oil demand should return to pre-pandemic levels in 2022.
The producer organisation flagged that oil demand in the fourth quarter of 2021 was adjusted slightly lower, taking into account covid containment measures in Europe and the potential impact of omicron. That said, some of the recovery previously expected in the fourth quarter was shifted into the first quarter of 2022.
“The impact of the new Omicron variant is expected to be mild and short-lived, as the world becomes better equipped to manage COVID-19 and its related challenges,” OPEC said. “This is in addition to a steady economic outlook in both the advanced and emerging economies.”
Oil markets have struggled to follow through on OPEC’s positive remarks amid a sweep of omicron-related news.
On Tuesday, the UK reported the world’s first publicly confirmed omicron death.
UK Health Secretary Sajid Javid said that the new variant accounted for more than 40% of cases in London and warned that it will soon become the dominant variant.
On the same day, Chinese authorities confirmed its first case of omicron. This could see Beijing unleash swift lockdowns or travel restrictions as part of its tough “zero-tolerance” policy.
Amidst the diverging headlines, ASX energy stocks have struggled to find direction, dabbling between positive and negative territory.
Large cap names including Woodside Petroleum (ASX: WPL), Beach Energy (ASX: BPT) and Santos (ASX: STO) all closed Tuesday's session up or down less than 1%.
Looking ahead, if omicron happens to chip away at near-term oil demand, "it will likely trigger an immediate response from OPEC+ that would include the removal of the promised output increase," said OANDA senior market analyst Edward Moya. "The Saudis are making sure that crude prices can only either consolidate or head higher."
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