Oil rebounds as energy ministers try to calm investors’ nerves

Oil prices recovered on Monday as ministers of top energy-producing countries assured investors that there is no need to panic after crude plunged more than 10 per cent on Friday due to the outbreak of the Covid-19’s new variant Omicron.

Crude prices recovered on Monday as WTI rose 6.16 per cent to $72.35 while Brent gained 5.17 per cent to $76.48 a barrel at 6pm UAE time.

Prince Abdulaziz bin Salman Al Saud, energy minister of Saudi Arabia, told Asharq Business that there is no need to worry about the Omicron.

Alexander Novak, deputy prime minister of Russia, also tried to calm the markets, saying there is no need to take urgent action to stabilise the oil market due to Omicron.

“There is no need for hasty decisions. We will additionally discuss with the Opec+ countries the market situation and if any measures are warranted,” Novak said.

Opec will meet on Wednesday, followed by a joint meeting of experts of Opec+. On Thursday, an Opec+ ministerial monitoring committee will meet.

Russian deputy PM downplayed the possibility of changes to an Opec+ oil supply deal this week.

Opec+ has been reducing its curbs on output by 400,000 barrels per day of oil per month as it winds down record cuts from last year when it cut production by as much as 10 million bpd to address lower demand caused by lockdowns.

The group has some 3.8 million bpd of cuts still in place and some analysts have suggested the group could pause its output increases.

Monica Malik, chief economist at Abu Dhabi Commercial Bank, said Opec+ will have to assess not only the impact of Omicron on global oil demand but also the release of Strategic Petroleum Reserves (SPR) by major oil-consuming countries, including the US.

“These new developments could further boost the already expected oversupplied global oil market conditions in Q1 2022. Against this backdrop, we see the possibility of Opec+ potentially pausing its planned gradual increase of 400,000 barrels per day in supply for January, while a cut cannot be ruled out,” added Malik.

Jeffrey Halley, senior market analyst for the Asia Pacific at Oanda, stated oil will be the market where short volatility traders to die this week.

“The omicron whipsaw is on full display today as Brent and WTI, having fallen by over on Friday, have staged a very sharp rally, thanks to some tenuous reports that Omicron’s symptoms are mild. Time will tell if this is correct (and I hope it is), but financial markets aren’t waiting around to find out,” he added.

Halley noted that Opec+ compliance has held steady above 100 per cent for quite some time now, suggesting there is not much swing production available to open the pumps anyway. “I also note that pre-omicron, US production had recovered to 11.5 million bpd, yet prices were still high. That would suggest Opec+ would have been comfortable raising production targets as planned, even if they couldn’t actually pump it.”

Naeem Aslam Chief Market Analyst at London-based AVA Trade, said the group will also likely gauge how countries’ strategic petroleum reserves will impact oil demand for Opec+ nations.

— waheedabbas@khaleejtimes.com