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Crude oil has a bit of a spring in its step as we wave goodbye to 2021 and welcome 2022.

Oil trading

A solid start for crude oil benchmarks

Oil starts 2022 in a good place. Two of the world’s key benchmarks have made solid gains since the end of 2021. At the time of writing, Tuesday 4th January, Brent and WTI were trading up about 0.5% on the day.

West Texas Intermediate futures, for example, were exchanging hands for around $76.40. That’s roughly $10 higher than mid-December’s prices.

Brent crude is in a similar position. The North Sea benchmark is up roughly the same amount against Mid-December levels, trading for around $79.20.

The oil market is still someway off November’s highs, with prices clearing $85 for both Brent and WTI benchmarks. However, with last year’s Omicron COVID-19 variant being much milder in terms of hospitalisations and deaths, we may see crude reaching those levels as the year progresses.

Towards the end of 2022, we saw oil in a bit of a precarious position, thanks to uncertainty around the Omicron variant. Successful vaccine booster roll out in key crude importers could lead to normalised demand, rather than the huge drop off we saw in 2020. We’ll see, but there might be reasons to be optimistic about oil this year.

OPEC+ meets for the first time in 2022

At the time of writing, OPEC+ is gearing up for its first meeting of 2022.

Market consensus appears to be that the cartel will sanction a further 400,000 bpd increase in February, in line with OPEC’s ongoing plan to normalise oil markets.

OPEC appears to be feeling fairly bullish in the face of Omicron, according to its latest Joint Technical Committee (JTC) report. The cartel believes the variant’s impact will not be as harsh as first thought, in line with broader market expectations, leaving the door open for more production increases.

“The impact of the new Omicron variant is expected to be mild and short-lived, as the world becomes better equipped to manage COVID-19 and its related challenges,” the JTC report said. “This is in addition to a steady economic outlook in both the advanced and emerging economies.”

According to OPEC estimates, the world’s oil surplus will be smaller than the cartel predicted in December 2021, peaking at 1.4m bpd against the previous 1.7m estimate.

The report’s oil demand outlook remains unchanged at 5.7 million bpd and 4.2 million bpd in 2021 and 2022 respectively.

Watch Iranian oil output in 2022

More Iranian crude could splash onto oil markets across 2022. The nation announced at the tail end of 2022 it was planning to expand a number of projects across the year as part of its oil supply deal with China.

Iran said it plans to boost output at its super large South Azadegan oil field to at least 320,000 bpd across the year up to 2023. Currently, the field produces 140,000 bpd of crude. Increasing South Azadegan’s output, as well as raising levels from its North Azadegan counterpart and other western Iranian oilfields, could help Iran produce as much as one million barrels per day.

Iran will still have to negotiate a new nuclear deal with the US if it wants to pull of these ambitious projects. The China National Petroleum Corporation (CNPC) is poised to help develop Iranian oil acreages as part of both nation’s 25-year oil supply commitments. But again, this all hinges on a new US-Iran deal.

More crude oil on the market may lead to a dramatic drop in oil prices. While it’s good for Iran to increase its output, an oil glut could result in as much as 10% being sliced off the cost of crude. The development of Iranian oil will be worth keeping an eye on across 2022.

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