OPEC: Oil prices under pressure as countries impose mobility restrictions over Omicron

Oil prices came under further downward pressure in December 2021, after some countries introduced stricter mobility restrictions, as a result of the spread COVID-19 Omicron variant, the Organisation of the Petroleum Exporting Countries (OPEC) has stated.

It also maintained the global GDP growth forecast for both 2021 and 2022 which remains unchanged at 5.5 per cent and 4.2 per cent, respectively.

This is contained in the latest edition of OPEC’s monthly oil market report released on Tuesday.

According to the report, the robust growth in the world economy continues to be challenged by uncertainties related to the spread of COVID-19 variants, the effectiveness of vaccines against the Omicron variant, and general uncertainties regarding the pace of vaccine rollouts worldwide.

“Moreover, supply chain bottlenecks will likely continue holding back some of the momenta. Finally, major central banks have stepped up their efforts to rein in rising inflation.

“High sovereign debt levels in many regions, together with rising inflationary pressures and the consequent central bank responses, remain key factors to monitor,” it said.

It further stated that crude oil futures prices declined for the second consecutive month in December, falling from multi-year highs registered in October.

The report blamed this on persistent market volatility fuelled by rising uncertainty regarding the impact of the rapid spread of the Omicron variant and its effect on the global economy and oil demand.

“Uncertainties about the effectiveness of available vaccines against Omicron and a warning from the World Health Organization stating that “the overall risk related to the new variant of concern Omicron remains very high” added worries to the oil market,” it stressed.

In the same vein, the Organization forecasted a near-term economic growth recovery in 2022 second quarter after a softening in the first quarter.

“COVID-19-related challenges continue and constitute the key element for near-term economic growth. Some slowing momentum in the Northern Hemisphere winter period has already been anticipated in the OPEC

Secretariat’s economic growth forecast, while the rapid spread of Omicron has led to some additional minor 2022 first quarter adjustments especially in the US, but also in some other economies,” it stated.

It noted that the general COVID-19-related uncertainties will likely need to be considered for the whole year of 2022, as will progress in the fight to end the pandemic.

Another uncertainty highlighted by OPEC is an ongoing rise in inflation, given the importance of US interest rates and consequent repercussions a rising rate cycle may have on capital markets, global investment and the US dollar value.

Potentially, it said rising taxes on fossil fuel-related energy products due to the energy transition may further lift inflationary trends.

It said: “Inflationary momentum is forecast to decelerate somewhat in the coming months, though the magnitude of the retraction remains to be seen. Reopening effects, including rising demand for leisure, hospitality and transportation after the 2020 and 2021 lockdowns may wane and supply chain bottlenecks are gradually easing.

“However, a rise in wages and salaries, as well as rent and rent equivalents, which accounts for around 40% of US core inflation, may keep inflation at above the 2 per cent to 2.5 per cent range.”

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OPEC: Oil prices under pressure as countries impose mobility restrictions over Omicron