Ahead of Thursday’s OPEC+ meeting the group has postponed their technical meeting, giving themselves more time to assess the impact of the new coronavirus variant on oil demand and prices. It comes at a time where the market in general is grappling with what to do about the omicron covid variant. The worst impact so far is from the speed with which countries are moving to halt inbound foreign travel, with many countries stopping all flights from South Africa and other countries in the region, while Japan has taken the dramatic step of halting all inbound foreign travel from tomorrow. More hopeful indications from virologists in the virus origin area are anecdotally that this variant is not particularly virulent, although others point out that too little is known about the virus’ effects on more vulnerable patients.
Goldman Sachs and Morgan Stanley have both in their latest updates calculated that based on no response from OPEC+, the market after Friday’s slump is now pricing in a 4 million barrels/day negative demand hit over the next three months. The impact during last winter’s second wave was around 2 million barrels per day. IF OPEC’s technical committee draws the same conclusion, the market could be in for a surprise production cut on Thursday.
The risk of 90-dollar oil has not gone away, but once again the timing has been postponed with 2022 increasingly looking like a relatively balanced year. The main worry remains 2023 and beyond when OPEC+ have exhausted their ability to increase production. Not least considering a potential decade of underinvestment's with oil majors losing their appetite for big projects, partly due to an uncertain long-term outlook for oil demand, but also increasingly due to lending restrictions being put on banks and investors owing to a focus on ESG and the green transformation.