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Omicron variant contributes to lowering the price of oil

7 December 2021
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Energynomics

Crude oil prices fell by 15% in a single session, with investors anticipating new restrictions with the advent of the Omicron variant, according to a statement from XTB Romania.

Thus, the risk of imposing additional restrictions, similar to those of the first lockdown, affected the desire of investors to buy. If current vaccines prove to be ineffective against Omicron, travel will be reduced, flights will be suspended, people will stay home and oil demand will fall. If we look at Austria, where another lockdown has been introduced, mobility has fallen well below the levels we saw a few weeks ago or just before the first wave of the pandemic, analysts say.

The majority of the population would prefer much cheaper oil, but not OPEC + (the 13 OPEC member countries plus another 10 oil exporting countries). If the group already sees a clear oversupply of oil in Q1 2022, then, driven by a further drop in demand due to Omicron, OPEC + could initiate further measures, according to Agerpres.

“Will we pay less at gas stations? Probably yes! However, it must be said that the price of gasoline does not depend only on the price of oil. The components of the price of gasoline and diesel are in most cases: crude oil, refining margins, distribution and marketing, taxes,” say XTB analysts.

In the United States, the share of crude oil in the cost of fuel is of up to 50%. On the other hand, in non-oil producing countries, distribution costs and taxes account for a much higher share.

Therefore, even if prices are now 25% lower than the current market peak, fuel prices will fall by only a few percent. Therefore, some countries decide to take other measures, such as reducing VAT or excise duties.

Seasonality indicates a limited demand at the beginning of the new year. In such a case, the dynamics of the upward trend would be slowed down anyway. Therefore, we should not expect major efforts from OPEC+. On the other hand, the group would like to keep prices around $ 70-80 a barrel, which allows for long-term planning of future mining projects. Therefore, in the future, we should expect additional actions from OPEC+, which will aim to maintain the price during this time period.

The coronavirus pandemic has changed many things around the world. From an investor perspective, financial market volatility has never been higher.

Autor: Energynomics

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