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Below is Perspective on Crude Oil by Mr. Navneet Damani, VP – Commodities Research, Motilal Oswal Financial Services

Crude oil prices continue to struggle as traders grew more concerned about the demand impact as fast increase in omicron cases and another report showing inflation running hot are likely to dampen risk appetite, which is reflected in thinning trading volumes ahead of the year-end holiday season. Also, unseasonal warm weather in Asia is potentially softening demand for fuels toward heating and power generation. The consumption scenario appears to be deteriorating as China, the biggest importer of crude, limits holiday travel to contain COVID. Currently, Omicron is a number one variable for demand on a daily basis. As for OPEC+, it stands ready to act should the situation necessitate which will continue to backstop prices for now. The cartel latest forecast clearly shows that growth of demand for the crude oil in next few years ahead: in next 25 years, says the OPEC+, the global demand will grow by 17.6%. In the OECD countries, however, the data shows a decline in growth by 7.6% that could be accounted for by anticipated growth of renewables. The IEA expects global oil inventories to swell early next year as supplies remain abundant with the OPEC ramping up output, some key consumers planning sales from strategic reserves, and record production from the U.S., Canada and Brazil next year. Some support was seen in North Africa, where an attack by militias knocked out more than 300,000 b/d of supply in Libya.

 At the same time, it seems that the oil selloff that began among fund managers last month is slowing down. The situation with oil futures right now is such that funds may be about to start buying again. It will all depend on Omicron and possible lockdowns. Risk of more infections is high and therefore trend remains on downside for WTI prices to touch levels of $66-67 levels in coming weeks.

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