OPEC said it believes that the Omicron variant will not have as much of an impact as widely feared on Dec. 13, raising its forecast for global oil demand for the first quarter of 2022.
Oil prices sharply dropped in late November through early December as the new variant emerged, with global crude prices ending November with their largest percentage declines since March 2020.
The price dropped suddenly by 10 percent on Nov. 26 after Thanksgiving, when reports of the new variant emerged and traders feared a renewed hit to demand.
OPEC and its allies decided on Dec. 2 to stick to their planned production increase of 400,000 bpd for January 2022, with the decision appearing to have been an accurate forecast as global prices stabilize.
The petroleum export organization said that earlier predictions of a recovery in consumption at the end 2021 will be shifted into early next year.
“Some of the recovery previously expected in the fourth quarter of 2021 has been shifted to the first quarter of 2022, followed by a more steady recovery throughout the second half of 2022,” it said.
For 2022, the OPEC forecast for demand growth remains at 4.2 million barrels a day.
OPEC said it expects world oil demand to average 99.13 million barrels per day (bpd) in the first quarter of 2022, up 1.11 million bpd from its forecast last month.
The organization remains upbeat as oil prices have recovered from the dip when Omicron emerged last month, but the World Health Organization says the variant still poses a “very high” global risk.
For the first time since 2019, world consumption is expected to surpass the 100 million bpd mark in the third quarter of 2022.
Brent crude oil was last down 0.7 percent at $74.63 a barrel, up from a dip below $66 on Dec. 2, having pared some of its late November losses to rise almost 9 percent in December.
U.S. crude futures were down 0.7 percent at $71.17 a barrel, having rallied 8 percent this month.
Apart from fears generated by the pandemic, supply-chain issues and rising inflation in some of the world’s largest economies present challenges to the oil market.
The United States in particular has felt the inflationary effects of higher oil prices, with the Biden Administration making demands on OPEC to increase production.
The OPEC report said that inflation could spark central bank action from major economies, and that the prospect of a reduction in monetary stimulus “could potentially lead to additional challenges for highly indebted emerging economies, with foreign-currency debt.”
Under the Trump Administration, OPEC lost some control of the oil market for a few years due to U.S. producers pumping out shale oil. But since then, U.S. producers have curbed their oil output.
Traders are watching for signs of a big rebound in U.S. shale supply as higher prices prompt more investment, which could prove a headwind to OPEC’s efforts to support the market.
The United States is expected to increase production next year, but not enough to affect the market, the report says.
U.S. producers will likely add 0.65 million bpd of crude in 2022 on average, with 12.8 million bpd by year’s end, still below the high of 13 million bpd before the pandemic.
OPEC said it expects that the world will need 28.8 million bpd from its members in 2022, up 200,000 bpd from last month, which ended at 27.72 million bpd.
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