The fall was influenced by the emergence of the COVID-19 variant omicron and the US decision to bring 50 million barrels from its strategic petroleum reserve to the market.
For example, Japan canceled key figure skating events leading up to the Winter Olympics; flights to and from African countries and some other regions are being curtailed; and, in Europe, governments are beginning to introduce restrictions and, in some cases, mandatory vaccinations.
In reaction to this news, prices fell below $66 a barrel, but then quickly recovered as details about the caveats calmed the market’s fears of OPEC+ ignoring omicron risks.
On the other hand, the alliance at each meeting emphasizes that it reserves the right to react quickly and adapt its policy if market conditions shift.
At the December forum, it was decided to closely monitor the situation with the new variant, to keep the meeting technically in session, and to “leave the door open” until the next scheduled meeting on Jan.
But the oil market was reassured during the past week by the news that the omicron variant might not be a strong demand disruption factor previously feared.
Indeed, over the past few days, oil prices have recovered, and the Brent benchmark again exceeded the mark of $75 a barrel — up 7.5 percent on the week and WTI settled at $71.67 per barrel — up 8.1 percent on the week.
So, the likelihood of another period of mobility constraints and a temporary decline in oil demand is decreasing.
The latest official data from the US, Europe and China point to stagnating demand, as their economies have largely returned to pre-pandemic levels, at least the parts in which the use of oil plays an important role.
Yet, there is still plenty of uncertainty in the near term with regards to price direction and, as a result, the market is likely to remain under pressure and volatile.
But market sentiment and underinvestment in the sector could provide upward support to prices in the short term.
Meanwhile, volatility is uncomfortable for both producers and consumers.
Namat Abu Al-Soof is an Iraqi oil expert with long experience in upstream and market analysis.