The impact of Omicron has caused oil prices to reach $100 a barrel. By the end of 2022, crude oil prices are likely to soar 35%.
Production shortfall despite increasing demand along with geopolitical tensions is an unusual combination. As reported on Al Jazeera yesterday, Texas Intermediate crude slipped down to 0.70% at $84.95. And Global benchmark Brent crude futures slipped down to 0.78% at $87.69.
How has Omicron led to oil prices reaching $100 a barrel?
While the Omicron variant of COVID-19 is one of the leading causes for a hike in oil prices, oil supplies are in a shortage than imagined.
Senior oil analyst at Rystad Energy Louise Dickson said to Al Jazeera, “a brief spike towards $100 could materialize, but would be quickly corrected as marginal suppliers respond with more crude.”
According to the American Automobile Association, a gallon of gasoline costs approximately $4.65 in California. Last year the national average soared up to $3.33 from $2.40.
In a note to clients, Goldman Sachs analysts wrote, “The omicron hit to on-road and jet demand appears smaller than that of delta outside of China so far, of 0.7 mb/d [millions of barrels per day (bpd) in January and is expected to dissipate by March.”
What do analysts say about the hike in oil prices?
Javier Blas, author and Bloomberg columnist, writes, “Supply and demand fundamentals drive oil prices. Things like OPEC+ production plans and US driving patterns matter the most — until they don’t.”
A National Security Council spokesperson said, “We continue to work with producer and consumer countries and these steps have had real effects on prices and ultimately tools continue to remain on the table for us to address prices.”
Nevertheless, some believe although the end of the pandemic is in sight, the oil demand is likely to soar.
What are the other causes for a hike in oil prices?
Politically related supply outages and geopolitical tensions lend a hand to oil prices reaching $100 a barrel. While the oil demand is constant, the Organization of the Petroleum Exporting Countries and its allies face production shortfalls.
While OPEC+ members such as Libya, Ecuador, Nigeria, and Kazakhstan reduced the first hit of the Omicron, the temporary halt in the Iraq-to-Turkey pipeline is a contributing factor.
Furthermore, Deputy Director of the Atlantic Council Global Energy Center, Reed Blakemore, told Al Jazeera, “But the group definitely understands that high prices can quickly become a bad thing and thus remain wary of how the price environment will evolve moving forward.”
Consumers are directly affected as oil prices reach $100 a barrel. The Biden administration opened the taps of the US’s Strategic Petroleum Reserve after being refused by the cartel and its allies last year.
However, the SPR is not a permanent solution to the hike in oil prices. The Biden administration must improve relations with OPEC’s most powerful member, Saudi Arabia, to generate more oil in the market and reduce expenses.