Hopes of a shiny performance next year are fading

Oil prices fell under pressure this week as cases of the Omicron variant surged, raising concerns that new restrictions could hit fuel demand
.

A new study in the UK shows that the Omicron variant poses more than five times the risk of reinfection than the Delta variant, and there are no signs of milder
symptoms.
European countries are considering further strengthening travel and social restrictions
.

In fact, XM analysis notes that the fate of growth commodities such as oil and industrial metals, whose prices have risen
this year, depends heavily on the performance of the global economy.
If the world continues to make progress in containing the Covid-19 pandemic, strong demand could further boost cyclical commodities
.

Oil will enter 2022 on a weak note

Crude oil prices rebounded from pandemic-induced April 2020 lows and recovered at more "reasonable" levels starting in 2021
.

Throughout the year, supply throughout the year has not been able to keep up with growing demand
due to a strong recovery after the economic stagnation caused by the first wave of the coronavirus pandemic.
This lack of supply, combined with OPEC's reluctance to increase production, sent oil prices soaring, reaching a seven-year high in October
.

In 2021, the price of WTI crude oil exceeded $80 per barrel, when many restrictions were in place
.

Heading into the new year, oil demand is expected to rise further, reaching pre-pandemic levels
in the first quarter.
But with the emergence of the Omicron variant, previously optimistic forecasts have been lowered, making the hope that 2022 will be another shining year for "black gold" dim.

Oil prices retreated sharply in November after the Omicron variant revived
fears of slowing economic growth.
Panic has eased since then, but the rally may pause
until there is more conclusive evidence that the new strain is not as severe as previous variants.

During this period, the possibility of a nuclear deal with Iran has become less and less likely, which supports this commodity
.
Negotiations between Western powers and Iran have not progressed as hoped
.
Time will tell: whether the gap between the two sides will narrow
in 2022 as the United States steps up enforcement of existing sanctions on Iran.

Consume inventory to stimulate demand

Global oil inventories fell sharply in 2021, indicating a serious lack of supply in the market, setting the stage for
higher oil prices in the year ahead.
In Cushing, Oklahoma, where WTI crude futures contracts are delivered, oil inventories are now 50 percent
lower than at the beginning of the year.

The higher prices of near-term contracts compared to longer-term contracts also reflect a reduction in inventory, which also reflects market expectations that shortages will subside
in 2022.
This difference in the price of a futures contract is known as a spot premium, which has historically been considered a bullish signal
for oil prices.

Despite the current deficit, a modest surplus
is expected next year, driven by increased production.
At its December meeting, the OPEC alliance stuck to a deal to increase oil production by 400,000 barrels a month until next September
.

Supply from non-OPEC countries is of concern

Next year's surplus is expected to be driven
mainly by an expected increase in output from non-OPEC countries.
But at a time when the oil industry is under attack for a global shift to green energy, it is unclear how realistic these production forecasts are
.

The shift to carbon neutrality by many governments has led to a persistent underinvestment in new fields, particularly in the United States, where fears demand will soon peak, raising doubts about whether non-OPEC countries will be able to adequately ramp up production
in 2022, even with the current high oil prices.