The new COVID-19 variant Omicron could cost the global oil market as much as 2.9 million barrels per day (bpd) of demand in the first quarter of 2022 if it triggers a fresh round of lockdowns, a new report by Rystad Energy, an independent energy research firm has found.
A new round of restrictions to contain the virus could cause oil demand to slip from an expected 99.1 million bpd to 97.8 million bpd in December 2021 alone – a drop of 1.3 million bpd, the analysts said.
Oil demand could tumble further in January 2022, shedding 4.2 million bpd to a level of 94.2 million bpd.
In late November, oil demand growth was so strong that even a coordinated strategic petroleum reserve release from major oil-importing countries did nothing to quell bullishness surrounding oil prices.
It took a panic response by governments around the world who began shuttering their borders to people from countries who reported the existence of the variant for the price of oil to decline by more than 10 percent.
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Claudio Galimberti, senior vice president of analysis at Rystad Energy, said: “The likelihood of increasing lockdowns in the coming months has risen dramatically due to the new Omicron variant, and this will undoubtedly impact global oil demand.
“Given the early stage of the variant outbreak and the unknowns related to contagiousness and vaccine efficacy, we can only hope this scenario turns out to be a false alarm. Still, if the risk is real, the oil market will need to recalibrate accordingly”
Breaking down the projected impact on specific oil products illuminates how Omicron could affect different elements of the global economic recovery.
Rystad projects that in the first quarter of 2022, demand for gasoline could fall by up to 1.3 million bpd to 24.2 million bpd, a 5 percent decrease from the base levels of 25.5 million bpd.
Jet fuel demand could also be significantly impacted as demand for flights and travel slows. Estimates show jet fuel demand could drop 6 percent in the first quarter of 2022 from the expected 5.5 million bpd to 5.2 million bpd.
Furthermore, the second and third quarters would see a deeper plunge, dropping 10 percent in the second quarter from 6.1 million bpd to 5.6 million bpd, and 11 percent in the third quarter from 7 million bpd to 6.2 million bpd.
It is also worth noting that current global oil demand for road transport, estimated to be about 44.7 million bpd, is almost at pre-pandemic levels, representing 97.4 percent of demand in the corresponding week in 2019.
On the other hand, global demand for aviation lags the equivalent 2019 total and stands at 5.1 million bpd, only 70.4 percent of the corresponding week in 2019.
“Our initial estimates now appear even more probable given the emergence and spread of the Omicron variant in Africa and related travel bans from countries with high caseloads, not to mention the slow convergence of European countries, starting with Austria, the Netherlands and Germany, enforcing mobility restrictions,” the report stated.
Meanwhile, Nigeria, an oil producing giant and a member of the Organisation of the Petroleum Exporting Countries (OPEC), on Wednesday reported the presence of the virus variant in the country triggering travel restrictions from Canada.
The projected fall in energy demand could add further pain to an economy offered a lifeline by rising prices and has seen gains vanished by over $250million monthly spend on petrol subsidies according to the state oil firm.
