Will Oil Prices Depend on COVID-19? Projections for 2022

Although oil price peaked temporarily in mid-October 2021, experts are still monitoring its developments, mainly because this commodity can have a meaningful impact on global economic activity and inflation.

Prices were dampened by the COVID-19 pandemic in 2020 when demand was lower than supply, but as economies reopen, the world is facing a completely different picture. Expectations are tilted towards a continuous rise in prices, which is why it would be important to analyze and try to project what could happen with oil next year.

New variant – new restrictions – less economic output

The recent retracement lower in crude oil price has been attributed to several factors, including a stronger US Dollar, but the most notable one is the latest coronavirus variant – Omicron. According to analysts at InvestingCrypto, until uncertainty around the variant settles, oil could remain pressured, a sign of relief especially for economies reliant on oil imports.

Basically, the belief is that as a new transmissible variant emerges, it can prompt governments to impose restrictions, which will impact economic activity, and thus oil usage globally. For the time being, there are more questions than answers with regards to Omicron, putting crude oil buyers on hold until further notice.

crude oil refinery

Demand-supply imbalance favoring the upside

As things move forward, the price will mainly depend on the demand/supply balance. OPEC+ moves ahead with output hikes as planned, which could mean the global markets will be undersupplied heading into 2022, considering economic activity will continue to recover.

On top of that, there are already government attempts to cap the upside in prices, as the US, Japan, and several other countries vowed to release part of their strategic reserves. Oil trading with brokerages such as InvestingCrypto is still trending as a result of volatile prices and until a clear directional bias is established, both buyers and sellers can find new opportunities.

Even though the oil reserve release will materialize at some point, experts believe it could have a short-lived impact overall. Inflation is elevated all around the world and if energy continues to be expensive, pressure on prices can be strong well into 2022.

There is increasing political pressure to keep prices stable, as the US midterms and French presidential elections are getting close. On the other hand, oil-exporting countries don’t want to increase supply in order to preserve the same profit margins, after a year like 2020 when they had to face record losses.

Oil technical outlook still favoring bulls

Analysts at Goldman Sachs, the popular Wall Street investment bank, are saying oil prices could be higher for much longer. Some projections are pointing towards crude prices at or above the $100 psychological area.

Uncertainties remain and valuations can be impacted on both sides. However, as long as the price per barrel is pressured on the upside, the average consumer will be the one most severely hit. A transition towards renewables, which will naturally lead to fewer investments in fossil fuels, should also be monitored.

Related Articles

Back to top button