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The new Covid variant Omicron might play a key role in determining how crude oil prices move in the coming days. The variant has so far appeared manageable with no significant data on fatality being reported from affected countries, but its exact impact on commodity prices can only be determined once there is a prognosis on how dangerous it ultimately turns out to be.
According to Sukrit Vijayakar, Director of Trifecta Consultants, oil prices — which were at a high of around $86 a barrel sometime in August this year — plunged to a low of $68 a barrel when the variant was first reported, and is currently trading at around $73-74 a barrel. There are several bullish factors which could lead to price rise from here on. The OPEC (Organization of the Petroleum Exporting Countries) and non-OPEC producers have been adhering to quotas withholding supplies in the market.
“This is hoarding or price manipulation and this is likely to send prices up. The demand is also growing as the lockdown has eased across several places. This apart, the geopolitical uncertainty is another factor that is likely to push up prices,” Vijayakar said at the Commodities Market Outlook 2022 webinar organised by BusinessLine .
No short supply
Short supply of oil globally in unlikely as there is enough spare capacity in both OPEC and non-OPEC countries. OPEC has a spare capacity of two million barrels a day and the US has spare capacity of 1.4 million barrels a day.
“No buyer of oil has ever been stuck for a cargo of oil when required so this short supply should be taken with a severe pinch of salt. The efficiency of oil rigs has been improving so there is expectation of good production so I don’t see market being short for oil. The demand is more of an issue than the supply,” he said adding “we are not going to be in a situation where refineries will stop working because there is no oil. The oil reserves act as some kind of price cooler,” he said.
According to Mathew John, Director – Technical Research, Almus Risk Consulting, the average price of crude in 2022, even if it were to spike, should be around $75-80 a barrel. However, on the downside, oil could go lower to around $58-60 a barrel levels and the maximum downside would be $49 a barrel.
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