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Thursday, May 19, 2022


Oil prices: Uncertainties linger amid Omicron variant

After coming under intense pressure in recent weeks, the oil market has somewhat rebounded, and oil prices have regained upward momentum.

Notably, Brent crude, the global oil benchmark, saw a significant drawdown of 20.2 percent from the 2021 high of $86.40/b set on 26th Oct 2021 to a trough of $68.87/b on 1st Dec 2021. Brent has recovered 8.0% MTD, closing at $74.39 on 13th Dec 2021.

Brent crude is still up 43.6 percent YTD but began its bearish trend in Nov-2021 when the United States and other major oil consuming nations agreed to release millions of barrels from their strategic reserves in a bid to cushion gasoline prices and combat inflationary pressures.

Furthermore, oil prices came under further pressure at the close of Nov-2021, on the back of the discovery of new Covid-19 variant, tagged Omicron, which led to introduction of travel restrictions/bans.

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As a result, a significant downturn was witnessed largely on the back of worries over the potential severity of the variant.

Looking forward, Omicron remains a headwind which could weigh on oil demand. Recent reports of the variant causing the death of an individual in the UK have emerged.

Also, the rapid spread of the variant in South Africa points to high transmissibility. Furthermore, reports suggest the variant is evasive against existing vaccines, and this could drive further need for travel bans and movement restrictions.

There could also be the need for vaccine manufacturers to come up with additional/booster vaccine shots to help provide further protection against the new variant.

However, while demand for oil could be constrained in the near term, said demand will only be pushed forward into Q1-2022 when there is more clarity on Omicron infection and fatality rates, which will be supportive of higher prices. ~ United Capital Plc

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