Oil rally hits Omicron demand roadblock as glut worries rise

© Reuters. FILE PHOTO: Crude oil storage tanks are tr foreign exchange NFT withdrawalseen from above at the Cushing oil hub, in Cushing, Oklahoma, March 24, 2016. REUTERS/Nick Oxford/File Photo

By Ashitha Shivaprasad

(Reuters) - Oil analysts have lowered their price forecasts for 2022 as the Omicron coronavirus variant poses headwinds to recovering fuel demand and risks a supply glut as producers pump more oil, a Reuters poll showed on Friday.

A survey of 35 economists and analysts forecast Brent crude would average $73.57 a barrel in 2022, about 2% lower than $75.33 consensus in November. It is the first reduction in the 2022 price forecast since the August poll.

U.S. crude is projected to average $71.38 per barrel in 2022, versus the previous month's $73.31 consensus. [O/R]

"With oil demand growth slowing, supply growth persisting, and the energy crunch easing, we see the oil market balance expanding rather than shrinking in 2022 and thus expect prices to trend lower from today's levels," said Julius Baer analyst Norbert Rücker.

Benchmark Brent crude prices, currently trading around $80 a barrel, are on track for their biggest yearly jump since 2009 as fuel demand bounced back.

However, the new Omicron variant of coronavirus is spreading faster, causing nations to tighten restrictions. If curbs continue, it could reverse the recovery in oil demand.

The global reopening will improve once the current Omicron surge has passed, said Edward Moya, senior market analyst at OANDA, adding that oil prices will likely remain volatile as OPEC+ keeps traders on edge with their gradual production increases.

The Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, will meet on Jan. 4 to decide on their production policy after they agreed to stick to the plan of increasing output by 400,000 barrels per day per month.

"On the supply side, OPEC+ strategy, U.S.-Iran nuclear talks and speed of U.S. shale recovery will all come into play but will be secondary to the demand side of the picture," said DBS Bank analyst Suvro Sarkar.

Demand was seen growing by 3.2-6.0 million barrels per day (bpd) in 2022.

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