By Nathalie Voit

The Omicron variant of COVID-19 is expected to slow global demand for oil by 100,000 barrels per day for the remainder of the year and 2022, a report from the International Energy Agency (IEA) released Dec. 14 said.

Global oil demand is predicted to grow by 5.4 million barrels per day in 2021 and by 3.3 million barrels per day in 2022 until it rebounds to pre-pandemic levels at 99.5 million barrels per day, the IEA said in its monthly Oil Market Report. 

In particular, jet fuel is expected to post downward demand due to renewed restrictions on international travel prompted by the emergence of the new strain at the end of last month.

However, the recent surge in COVID-19 cases is not expected to alter the global recovery in oil demand that is underway, the report’s authors said. That is because new regulations that will be instituted to halt the spread of the virus will likely have less economic impact than measures placed during previous COVID-19 waves since many people are now vaccinated.

As a result, the agency said that demand for road transport fuels and petrochemical feedstocks would increase.

Despite the fresh restrictions, global oil production is on track to outstrip demand from December, with the U.S. and OPEC+ countries driving the increase in oil output. The upward supply trend is expected to extend into next year, with the U.S., Canada, and Brazil set to pump at their highest annual levels ever.

Global supply could soar even higher to 6.4 million barrels per day in 2022 compared with 1.5 million barrels per day in 2021 if Russia and Saudi Arabia set records, depending on how fast OPEC+ output cuts are lifted, the report said.

With respect to oil prices, the forecast is also gloomy.

“Our oil price assumption (based on the forward curve) is roughly 15% lower for 2022 than in last month’s report,” the report noted. “Brent prices average $70.80/bbl in 2021 and $67.60/bbl in 2022.”

Benchmark crude oil plunged by $15-$17 a barrel during November to settle at around $75 a barrel at the end of the month. This was approximately $10 a barrel lower than at the start of November.

As of 9:30 a.m. ET Tuesday morning, Brent crude oil futures fell just over 1% to trade at approximately $73.49 a barrel.