Oil prices have fallen sharply since November and have only been able to recover a little temporarily since last week’s slide. One reason for the price drop is the increasing concerns about the new Corona variant Omikron.
Experts also expect prices to fall further at the beginning of the new year, which could be triggered by a temporary supply surplus. The results of the OPEC+ meeting are therefore eagerly awaited.
Concern about Omikron depresses oil prices
By the end of last week, oil prices had experienced their most violent slide in quite some time. Although there has been a slight recovery since then, worries about the new Omikron variant have not spared commodity trading and are currently weighing heavily on investor sentiment.
It is not only the uncertainty about the aggressiveness and dangerousness of the new virus variant that is currently driving investors. Further uncertainty was also caused by concerns raised by vaccine manufacturer Moderna about the efficacy of previous Corona vaccines.
It is not surprising, then, that new restrictions in the fight against the Corona pandemic are feared in the oil market, as they would most certainly lead to a decline in demand for crude oil.
Since the beginning of November, oil prices have slumped noticeably and have now lost more than 17 percent. There are signs that this trend could continue at the beginning of next year.
Decline in gasoline demand in the USA
Now that the U.S. has released its strategic oil reserves, the U.S. Department of Energy reports a significant drop in gasoline demand. It appears that excess supply per day of 3 million barrels is expected for the first quarter of 2022.
This is even expected to increase to 3.8 million barrels per day in March, according to reports by the Reuters news agency, according to an internal document. Originally, only 2.3 million barrels per day had been expected.
Experts believe that the planned production increase by OPEC+ in January would result in a huge crash in oil prices due to this. To prevent prices from sliding further, OPEC+ would have to suspend planned production increases for at least a month. However, any suspension of the production increase would have to be agreed in advance with all OPEC+ countries.
However, it would be possible for Saudi Arabia to go it alone, similar to what happened last spring. However, given the uncertainty about the impact of the Omikron variant on supply demand, even this would be far too early, at least for now.
The experts consider production cuts to be completely unlikely. There may be a little more clarity after the OPEC+ meeting this week.