My forecast for the November WTI price range was completely wrong because of at least three factors. First, the Biden administration was determined to reduce oil prices, either by having OPEC+ produce more oil or by coordinating with countries to withdraw oil from their respective strategic petroleum reserves. Having failed to convince OPEC+ to cooperate, oil will be released from strategic petroleum reserves of numerous countries, including the United States. Second, Austria went into lockdown because of its COVID situation. Some feared Austria might be the first domino in Europe. And third, last Friday, oil prices tanked on the WHO’s announcement of a new COVID variant named Omicron.
Later this week, OPEC+ will decide its production quotas for January. Many, including Morgan Stanley analysts, are expecting OPEC+ to pause its automatic 400 thousand barrel per day increase. Below is an excerpt from the Wall Street Journal article “Oil Prices Stabilize After Omicron-Driven Friday Selloff” (subscription required) on November 29, 2021.
Crude’s recent volatility marks the latest big swing in energy markets sparked by worries that Covid-19 travel restrictions will weaken the global economy and sap demand for fuel. In the past 20 months, oil has frequently fallen sharply when new variants and travel restrictions emerge, only to later rebound when demand picks up and large producers instill confidence in their supply curtailments.
Some analysts expect a similar pattern to play out after scientists detected the new, fast-spreading Omicron variant in South Africa. While new travel restrictions could dent the recent recovery in fuel demand, some traders now expect the Organization of the Petroleum Exporting Countries and allies to delay projected supply increases.
“With uncertainty over Omicron, we expect that OPEC will shelve its target to increase output in January and keep its quota flat,” Morgan Stanley analysts said in a note.
Because of the uncertainty concerning Omicron, traders’ reaction to Omicron developments, and OPEC+’s upcoming decisions, I am not going to provide a forecast range for the next month. While I remain bullish, I would not be surprised if oil prices just eke up slightly during December or recover the entire Friday loss. Of course, oil prices could fall, and I would be completely wrong. So I am going to watch and wait.
I wish everyone good health, a happy holiday season, and safe travels, if traveling.