Oil prices are increasing today as traders recalibrate their assumptions on Omicron’s market effect, while Saudi Aramco also increased selling prices for January.

Here is Rystad Energy’s daily market comment from our Senior Oil Markets Analyst Louise Dickson:

Traders are brushing off the initial panic over the Omicron variant today, correcting prices upwards as the symptoms of the new strain of Covid-19 seem to be milder than what the market reaction last week initially indicated.

The oil market seems to now be convinced that higher price levels are warranted and premiums are added to the bargains of last week.

Last week’s buyers are set for a good end of the year after the quick boost oil prices got, while risk offloaders are now licking their wounds.

Saudi Aramco also paved the way for today’s oil price rise, as over the weekend it increased official selling prices for January. The price bump signals a clear physical demand bump in Asia for the most voluminous (about 5 million bpd produced currently) of all the OPEC+ crude grades, Arab Light. 

The signal from Saudi Arabia will be passed down to traders, who always carefully note the OSPs from Aramco to price their own portfolios towards the opposite direction.

The Saudis are notably bullish about the oil demand recovery, which also showed during last week’s OPEC+ meeting, and their stance weighed on the alliance’s decision to stay the course and stick to the plan to raise output in January 2022.

The decision by OPEC+ last week to ignore external calls to pause planned oil output additions due to Omicron seems to not only be not bearish as initially thought, but is also contributing to the current price rise and market confidence.

However, this week our real-time data registered the biggest weekly demand drop in countries facing large Covid-19 case loads – with demand for road fuels in Russia and India both dropping by more than 60,000 bpd since last week.

On the flip side of the coin, road fuels demand in the United States in the last week jumped by 60,000 bpd, as despite the worsening Covid-19 situation vaccinations are more widely distributed and third booster shots delivered.

Oil prices are also getting a boost as an Iran nuclear deal before Christmas seems increasingly challenging, putting at bay the supply risk of 1 million bpd being added to the global upstream picture.