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New COVID-19 variant throws oil industry into tailspin
—Could wipe out almost 3m barrels of oil demand per day–Rystad Energy
Kaieteur News – If Omicron, the new variant of COVID-19, triggers more lock downs or restrictions worldwide, Rystad Energy predicts that it could cost the global oil market as much as 2.9 million barrels per day (bpd) of demand in the first quarter of 2022. This would bring total expected demand down from 98.6 million bpd to 95.7 million bpd.
According to the consultancy group in its latest analysis, if the variant spreads rapidly, causing a rise in COVID cases and the reintroduction of lockdowns, oil demand could fall from an expected 99.1 million bpd to 97.8 million bpd in December 2021 alone – a drop of 1.3 million bpd. Demand could also tumble further in January 2022, shedding 4.2 million bpd to a level of 94.2 million bpd the organization said.
As countries and governments learn to live with Omicron, or vaccine manufacturers adapt existing shots to counter the variant, Rystad said the full-year impact will likely be less severe.
In late November, Rystad noted that oil demand growth was so strong that even a co-ordinated strategic petroleum reserve release from major oil-importing countries did nothing to quell bullishness surrounding oil prices. However, after governments went on high alert, it noted that the price of oil later collapsed by more than 10% as the demand downside is vastly different.
“The likelihood of increasing lockdowns in the coming months has risen dramatically due to the new Omicron variant, and this will undoubtedly impact global oil demand. Given the early stage of the variant outbreak and the unknowns related to contagiousness and vaccine efficacy, we can only hope this scenario turns out to be a false alarm. Still, if the risk is real, the oil market will need to recalibrate accordingly,” said Claudio Galimberti, senior vice president of analysis at Rystad Energy.
Rystad further noted that thus far, countries and regions have reacted differently to the pandemic while adding that it anticipates that trend will continue with the Omicron variant.
“For instance, countries in North and South America – such as the US, Brazil and Argentina – will likely try to weather the storm and prioritize economic activity. Countries such as China and Australia have in the past displayed a zero-tolerance approach and are expected to continue with this strategy amid future waves. European and Middle Eastern governments are likely to fall in between these two extremes as they try to find equilibrium between economic activity and preserving the health and safety of their populations,” the consultancy stated.
Furthermore, Rystad said it should come as no surprise if the status quo changes while adding that regional reactions will be dictated by vaccination rates, cultural attitudes towards risks and public sentiment.
“As with earlier outbreaks, restrictions may be primarily dictated by intensive care occupancy rates in hospitals and the availability of hospital beds more broadly. The pandemic has also impacted some regions and countries worse than others for myriad reasons. Consequently, some countries may need to enact more frequent or sweeping lockdowns than before, whereas others may not be as stringent,” the independent energy research and business intelligence company concluded.
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