Global oil prices continued to gain ground above $80/b Jan. 8, helped by a growing consensus that demand remained surprisingly resilient to the current omicron-led wave of COVID-19 cases which spooked markets in late 2021.
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Hospitalization levels in many countries with high vaccination rates continued to lag well behind soaring infection rates, and the head of the World Health Organization (WHO) said Jan. 6 that the more infectious omicron variant appeared to produce less severe disease than the globally dominant delta, adding however that it should not be categorized as "mild."
Brent crude futures, which traded close to $83/b earlier Jan. 8, had fully recovered from the end-of-November sell-off over initial omicron fears, with OPEC+ boosting oil output for a seventh consecutive month amid waning fears that the variant would trigger large-scale lockdowns.
Oil demand markers in most of the world's biggest oil-consuming countries hit post-pandemic highs by late December, according to Google data, despite initial mobility curbs in many countries to slow the spread of omicron.
"As far as the oil market is concerned, at the end of the day it's about lockdowns, it's about restrictions that matter and people's behavior," Kang Wu, Head of Global Macro, Demand & Asia Analytics at S&P Global Platts, said Jan. 6. "This quarter is a concern but it's still on track for growth this year...compared to the front page news on the explosion of omicron and cases. The [GDP] picture is more stable, the economy is still growing with risks."
Although global mobility in the world's biggest oil consumers fell sharply at the end of the year and first days of 2022, according to Google data, the slump reflected the seasonal holiday period slowdown. In India -- where Christmas and the Gregorian New Year holidays are little celebrated -- mobility slipped from post-COVID highs in late December in the week to Jan. 3. But mobility in the world's third-biggest oil consumer remains above pre-COVID levels which it hit in mid-November, the Google data showed.
Bullish recovery trend
The global economy returned to 2019 levels in the second quarter of 2021 and rebounded by 5.7% over the year. At the start of December, S&P Global trimmed its growth outlook for 2022 slightly, down from 4.4% to 4.2%, citing COVID-19 and inflation risks.
But some market watchers were cautiously optimistic that demand would continue to recover strongly, potentially fueling higher prices if oil supplies were unable to keep up.
Damien Courvalin, head of energy research at Goldman Sachs, viewed omicron as a short-term risk to prices, with 2022-23 remaining a "structural bull market" supported by the fact the global economy had become more resilient to the crisis.
"We've already had record-high demand before this newest variant and you're adding higher jet demand and the global economy is still growing," Courvalin said Dec 17. "You see how we will average a new record high in demand in 2022, and again, in 2023."
Goldman Sachs forecasts Brent to stay at around $85/b in 2022 and 2023, but sees a return to $100/b as a possibility.
S&P Global Platts Analytics expects oil demand to grow by 4.6 million b/d, slightly slower than the 4.9 million b/d estimated recovery in 2021.
Air travel has held up in most key markets despite omicron restrictions, although a slowdown in future bookings could dent jet fuel demand over the coming weeks.
Global weekly scheduled airline capacity edged 0.4% higher for the week starting Jan. 3, as increases in South and Southeast Asia and Lower South America offset a fall in North America and North Africa, according to aviation data company OAG.
But some airlines are removing the capacity for the first quarter of the year, OAG noted, with some 11.4 million seats removed since the middle of December and "a lot more" expected to be cut in the next few weeks. Global seat capacity is currently at 77.8% of the level of the week that started on Jan. 6, 2020, OAG data showed.
"Jet fuel has an important role to play this year simply because current demand levels are relatively low and it has room to recover. The data is supporting the [recovery] pattern, there's no change in the pattern," Wu said.
S&P Global Platts Analytics expects only "minimal improvement" in European jet fuel demand during the first half of 2022 compared with 2019 levels, with demand remaining one of the most vulnerable segments within European refined product markets.
As things stand, Platts Analytics sees jet fuel posting the strongest percentage and volume gains of all oil products in 2022 at 31% or 1.7 million b/d. Global jet and kerosene demand is estimated to recover to average 6.9 million b/d in 2022, according to Platts Analytics, up from 5.3 million b/d in 2021 but still below the 8.1 million b/d in 2019. Platts Analytics sees global jet demand only fully recovering and surpassing 2019 levels in 2024.