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