Oil prices are poised to have another unsteady year as increasing demand, low supply and pandemic uncertainty continue to send shudders through the market, according to the International Energy Agency (IEA).
“If demand continues to grow strongly or supply disappoints, the low level of stocks and shrinking spare capacity mean that oil markets could be in for another volatile year in 2022,” the Paris-based agency said in its flagship global oil market report published Wednesday, Axios reported.
Global crude oil demand, buoyed by loosening coronavirus restrictions, is expected to return to pre-pandemic levels for the first time since the virus first spread in early 2020, the IEA added, according to The Wall Street Journal. Daily oil demand will increase by 3.3 million barrels per day, the agency forecasted, boosting a previous estimate by 200,000 barrels per day.
The group noted that while the number of worldwide COVID-19 cases has skyrocketed over the last few weeks due to the highly contagious Omicron variant, oil demand “defied expectations” at the end of 2021. More, the low fatality rate of the Omicron variant has led to looser government restrictions around the world.
“The number of Covid cases is exploding world-wide but measures taken by governments to contain the virus are less severe than during earlier waves and their impact on economic activity and oil demand remain relatively subdued,” the IEA said in the report, the WSJ reported.
However, oil prices plummeted in November and December before data on the latest variant was available. Omicron is about 70% less likely to cause severe illness and 80% less likely to cause hospitalization, preliminary studies on infections showed.
On Wednesday, the price of oil hit its highest level since 2014.
“Crude prices struggled under demand uncertainties in December before a vigorous post-holiday rebound,” the IEA report stated.
The IEA further reported, though, that supplies are expected to catch up with demand as producers increase pump rates, according to Reuters. But the projection relies on OPEC+, the powerful group of Middle Eastern and Russian producers, to scale back production cuts implemented in 2021.
“Supply disruptions and underperformance by OPEC+ are tempering growth expectations for 2022,” the IEA continued, Reuters reported.
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