Oil price likely to climb back to $80 in near term

WTI crude price climbed above $73 in Wednesday’s evening trading session, even as the Omicron variant spread across the world.  Daily cases in the United States have reached a new high this Wednesday, surpassing 200,000 cases. The Centers for Disease Control and Prevention (CDC) reported last Friday, approximately 3/4 of new cases were from the Omicron variant. At this rate of increase, medical experts are already predicting for another winter surge.

But so far, the impact of the new variant seems to be less harmful to the economy. According to the Wall Street Journal, researchers at the London’s Imperial College reported that hospitalization due to the Omicron variant is significantly lower comparing to the Delta variant. Other researchers in South Africa estimated hospitalization risk for Omicron variant tends to be 70% to 80% lower.  

President Biden announced on Tuesday that the federal government will provide 500 million home testing kits staring in January. People can order them for free, have it mailed to their homes, so tests can be more available to take.  In a White House Speech, Biden assured that vaccinated people can feel safe to celebrate this holiday, and promised to issue no new lockdowns.

EIA’s commercial inventory this week saw another sharp decline from low production and high refinery input. Last week, refinery input had climbed to 15.8 million barrels per day, only slightly below the peak of summer season this year. Commercial inventory is currently sitting at 424 million barrels,  8% below the 5 year average, while the Strategic Petroleum Reserve has dipped to 596 million barrels, the lowest in nearly two decades.

American Automobile Association (AAA) projected that about 110 million people will travel between Dec. 23 to Jan. 2, a 34% increase from 2020. AAA also estimated that 6.4 million people will travel by air, roughly over 90% of air travel in 2019. The surge of oil demand could last for the next few weeks, bringing further draw downs on inventories.

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