What could Omicron cost global oil market?

(Rigzone) - The new Omicron variant of Covid-19 could cost the global oil market as much as 2.9 million barrels per day of demand in the first quarter of next year, bringing total demand down to 95.7 million barrels per day, if it triggers more lockdowns or restrictions.

That’s according to Rystad Energy, which warned that, if the variant spreads rapidly, oil demand could fall by 1.3 million barrels per day, to 97.8 million barrels per day, in December 2021 and by 4.2 million barrels per day, to 94.2 million barrels per day, in January 2022.

The company noted, however, that as countries and governments learn to live with the Omicron variant, or vaccine manufacturers adapt existing shots to counter the variant, the full-year impact will likely be less severe. Average 2022 demand would fall to 98 million barrels per day, according to Rystad, which highlighted that this was a drop of 2.1 million barrels per day against its current base case scenario.

“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,” Rystad’s senior vice president of analysis, Claudio Galimberti, opined in a company statement.

“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,” he added.

Omicron Product Impact

In the first quarter of 2022, demand for gasoline could fall by up to 1.3 million barrels per day to 24.2 million barrels per day due to Omicron, according to Rystad. That is a five per cent decrease from its base levels of 25.5 million barrels per day.

Jet fuel demand would also be “significantly impacted” as demand for flights and travel slows, Rystad warned. Estimates show that jet fuel demand could drop six per cent in the first quarter of 2022 from the expected 5.5 million barrels per day to 5.2 million barrels per day.

The second and third quarters would see a deeper plunge, according to Rystad, dropping 10 per cent in the second quarter from 6.1 million barrels per day to 5.6 million barrels per day, and 11 per cent in the third quarter from seven million barrels per day to 6.2 million barrels per day.

Omicron Regional Impact

Rystad highlighted that countries and regions have reacted differently to the pandemic so far, and noted that it anticipates that trend to continue with the Omicron variant.

“For instance, countries in North and South America - such as the U.S, Brazil and Argentina – will likely try to weather the storm and prioritize economic activity,” Rystad noted in a company statement.

“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,” Rystad added.

Rystad admitted that the status quo could change and said 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,” Rystad said.

“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,” Rystad added.