Omicron threatens oil demand recovery, already hit by Europe's rising COVID cases

[November 29, 2021]  By Florence Tan and Heekyong Yang

(Reuters) - Asian oil refiners' margins have slumped to the lowest in nearly five months amid worries that the Omicron coronavirus variant could deal another blow to oil demand recovery, already hit by rising COVID-19 cases in Europe.

Governments worldwide imposed travel curbs on travellers from southern Africa during the weekend to limit the spread of Omicron, first detected in South Africa. Scientists are racing to find out whether it is more transmissible or causes more severe disease than existing variants.

It comes as refiners' margins in Asia and Europe had already taken a hit in recent weeks as many European countries reimposed coronavirus restrictions to contain surging COVID-19 cases.

The double-whammy risks derailing the global economic recovery and by extension oil demand, which the International Energy Agency expects to grow by 5.5 million barrels per day (bpd) to 96.3 million bpd in 2021.
 

"At a time when many travel lanes are reopening, this is a setback," said Howie Lee, an economist at Singapore’s OCBC bank.

"We need at least two weeks to figure out what impact this new variant will have on oil demand."

Concerns about the new variant pummelled oil prices on Friday in thin post-Thanksgiving volumes.

 Pump Jacks are seen at sunrise near Bakersfield, California October 14, 2014. REUTERS/Lucy Nicholson/File Photo

Oil prices plunged more than 10% on Friday - their largest daily drop since April 2020 - but had only recovered some of those losses by 0608 GMT on Monday, standing up more than 3% on the day. Analysts said the Friday sell-off had been excessive. [O/R] Brent, WTI crude futures, https://fingfx.thomsonreuters.com/gfx/ce/
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Singapore's complex margins, a barometer for Asian refiners' profitability, stood at $2.15 a barrel on Friday, the lowest since June 30, Refinitiv data showed.

Just a month ago, margins peaked at $8.45 a barrel, the highest since September 2019.

"We are seeing drastic drops in refining margins over the past few days due to concerns over the fast-spreading Omicron coronavirus variant," said an official at a major South Korean refiner, pointing to the growing number of countries imposing travel restrictions as a result of the new variant.

"From a refinery's end, we are facing a double whammy – drops in oil prices and refining margins, which would likely worsen our profitability."

(Reporting by Florence Tan in Singapore and Heekyong Yang in Seoul; Editing by Ana Nicolaci da Costa)

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