Oil prices edged back 3% this week as the global pandemic accelerated to put pressure on oil prices

On Saturday (December 18), U.
S.
oil prices fell
slightly this week.
Among them, the price of US crude oil fell slightly by $1.
82, or 2.
53%, and the price of Brent crude oil fell slightly by $2.
4, or 3.
19%.

Oil prices fell slightly this week, mainly due to market concerns caused by the accelerated spread of the global epidemic this week, but on the whole, the long-short factors affecting oil prices this week are relatively balanced, and the crude oil market is waiting for guidance
from more factors.

Factors that are not conducive to oil prices this week include the IEA saying that oil supply is about to exceed demand, half of the US crude oil pipelines are idle, the recovery of US shale oil is accelerating, and the spread of Omicron virus is accelerating; Factors supporting oil prices this week include OPEC raising its global oil demand forecast for the first quarter of next year, soaring inflation in the United States, and soaring natural gas prices in Europe
.

The accelerated spread of the Omicron virus affects crude oil demand and is not conducive to oil prices

According to the United Nations website on December 14, WHO Director-General Tedros Adhanom Ghebreyesus revealed that the Omicron strain now exists in 77 countries and territories and is spreading
at a rate not seen in any previous variant.
He noted that it would be a mistake
to dismiss this Covid variant as "mild".

Tedros said: "Omicron is spreading
at a speed that we have not seen in any previous variant.
We worry that people think Omicron is moderate
.
Of course, we now know that we underestimate the harm this virus can do
to us.
”

"Even if Omicron does cause only less severe disease, the sheer number of cases could once again overwhelm an unprepared health system
," he said.
I need to be very clear: vaccines alone cannot get any country out of this crisis
.
Countries can – and must – prevent the spread
of Omicron through measures that work today.
”

Take all epidemic prevention measures
.
Tedros warned that it was a mistake to "pick and choose" strategies to stop the pandemic
.
"It's not about vaccines, it's about social distancing
," he stressed.
This is not about vaccines, but about ventilation or hand hygiene
.
Take all these measures
.
Stick to it
.
Do
it well.
”

He said that in the past 10 weeks, COVAX has shipped more vaccines than in the first nine months of the year combined, and most countries have put them into use
immediately after receiving them.

"A small number of countries are facing challenges in rolling out vaccines and scaling up rapidly, and WHO and our partners are working closely with these countries to overcome bottlenecks
," he said.
While we expect further improvement in supply, there is no guarantee and our hard-earned gains are fragile
.
”

Prioritize the
most vulnerable.
"Together, we will ensure that health workers, the elderly and other at-risk groups receive the primary vaccine doses to save the most lives
," Tedros said.

He noted that in most countries, hospitalizations and deaths are among those who
have not been vaccinated.
Therefore, the priority must be to vaccinate the unvaccinated, even in countries with the easiest access to
vaccines.
For the global effort to contain the pandemic, each country's top priority "must be to protect the least protected, not the
most.
"

Currently, some 41 countries are still unable to vaccinate 10% of their population, and 98 countries have not yet reached 40%.

Tedros stressed: If we end inequality, we will end the pandemic
.
If we allow inequality to continue, we will allow the pandemic to continue
.

The IEA said that oil supply is about to exceed demand, which is not conducive to oil prices

The International Energy Agency (IEA) said on Tuesday that a surge in coronavirus infections and the emergence of the Omicron variant would dampen global oil demand, but the overall picture is that oil production will exceed demand this month and soar
sharply next year.

The IEA said in its monthly oil report: "The surge in coronavirus cases is expected to only temporarily slow rather than stifle the current recovery
in oil demand.
" The impact on the economy of the new containment measures to stop the spread of the virus is likely to be milder
than in previous waves.
”

The IEA said the U.
S.
would be the country with the largest increase in production for the second month in a row because drilling activity there is increasing
.
Next year, if OPEC+ completely lifts its agreed production restrictions, Saudi Arabia and Russia could also produce record annual
output.
This could lead to an average oversupply of 1.
7 million barrels per day in the first and second quarters of 2022
, respectively.
Global oil supply could increase by 6.
4 million b/d next year and 1.
5 million b/d
in 2021.

The IEA lowered its oil demand forecast by 100,000 b/d this year and next, largely as new travel restrictions are expected to hit jet fuel use
.
Global oil demand is now expected to increase by 5.
4 million b/d in 2021 and 3.
3 million b/d in 2022, when it will return to pre-pandemic levels of 99.
5 million b/d
, the agency said.

Half of the U.
S.
crude oil pipelines are idle, indicating that the epidemic has led to a decline in U.
S.
crude oil production that is not conducive to oil prices

Data released Thursday by energy research firm Wood Mackenzie showed that about half of U.
S.
crude oil pipelines are idle
.
This situation reflects the decline
in crude oil production caused by the pandemic.

Wood Mackenzie reported that at the beginning of 2020, when U.
S.
crude oil production was still relatively high, 30 to 40 percent of pipelines across the country were idle
.
However, with demand so low and oil prices falling into negative territory, the pandemic-induced production decline has been so steep that the ratio of unused pipelines to oil production is now really higher than normal
.

This incredible decline is due in part to the pre-pandemic oil boom
.
Between 2017 and 2020, operators scrambled to build more pipelines
as oil production in the Permian Basin of Texas sharply increased, creating transportation bottlenecks and threatening to overwhelm existing infrastructure.
This is the result of
an unprecedented 15-year oil production peak in U.
S.
history.

Another factor contributing to the pipeline construction boom is Texas' eagerness to encourage oil and gas production, with few restrictions
set.
There are no major regulatory hurdles to building pipelines, and you hardly need a permit to build them
.

It's easy to blame the pandemic for a sharp drop in fossil fuel production and idle pipelines, but the story of U.
S.
oil production is not so simple
.

Global powers such as the Organization of the Petroleum Exporting Countries (OPEC) are tightening their grip on output to keep prices under control, while U.
S.
investors, many of whom suffered during the shale boom as large amounts of oil production drove prices to rock bottom, are now pressuring U.
S.
producers to keep production low to keep oil prices
high.

The recovery of shale oil in the United States and the continuous increase in the number of rigs since April last year are not conducive to oil prices

U.
S.
shale producers are increasing the number of wells, and despite the decline in shale oil prices over the past seven weeks, oil prices have held steady at relatively high levels for several months, making shale producers profitable
.

Energy services firm Baker Hughes reportedly said in a report released on Friday that the number of U.
S.
oil and gas rigs increased by seven to 576 in the week ending Dec.
10, the sixth increase
in seven weeks.

The number of wells drilled is often used as an early indicator
of future production.
Compared to the same period last year, the total number of oil and gas rigs increased by 238 units, or 70%; Among them, oil drilling increased by 4 to 471, the highest level since April 2020; Natural gas drilling rose by three to 105, the highest level
since March 2020.

Oil prices have soared about 47 percent this year, after Wall Street news mentioned that U.
S.
shale producers have not increased production
unlike previous periods of high oil prices.
Investors and banks pressured oil companies to live within their means, to pay down debts they owed during the shale gas boom, and to pay dividends
.

Producers who experienced a sharp drop in oil prices in 2015 and negative oil prices in 2020 are reluctant to repeat the mistakes of
falling oil prices after the increase in production.
Scott Sheffield, chief executive of U.
S.
shale producer Pioneer Natural, said this week he was concerned that oil prices could be too high and that the market could be further volatile
after years of underinvestment in the industry.

Sheffield said Pioneer Natural will stick to its plan
to "increase production by 5 percent by 2022 and drill 1 to 2 more wells per year.
" According to U.
S.
data provider Enverus, Pioneer Natural was the most active U.
S.
oil operator as of Dec.
8, with 26 rigs
.

The U.
S.
government forecasts that U.
S.
oil production is expected to decline from 11.
3 million b/d in 2020 to 11.
2 million b/d in 2021 and then rise to 11.
9 million b/d
in 2022.
By comparison, 2019 hit an all-time
high of 12.
3 million bpd.

OPEC's upward revision of global oil demand forecasts for the first quarter of next year supported oil prices

On Monday, the Organization of the Petroleum Exporting Countries (OPEC) raised its global oil demand forecast for the first quarter of 2022 and stuck to a timetable for oil demand to return to pre-pandemic levels, saying the Omicron variant would have only a mild and short-lived impact
.

OPEC said in its monthly report that it expects global oil demand to reach 99.
13 million barrels per day in the first quarter of 2022, an increase of 1.
11 million barrels
from the previous month's forecast.

OPEC said in the report: "Some of the demand rebound previously expected in the fourth quarter of 2021 has been delayed to the first quarter of 2022, and demand will rebound
more steadily in the second half of 2022.
" In addition, as the world becomes more prepared to deal with the pandemic and its associated challenges, the impact of
the new Omicron variant is expected to be mild and short-lived.
”

In its monthly report, OPEC maintained its demand growth forecast for this year and next, saying global oil demand will increase by 4.
15 million b/d
in 2022.
Global oil demand is expected to exceed 100 million b/d by the third quarter of 2022, in line
with last month's forecast.
According to OPEC, the last time global oil demand exceeded 100 million b/d was in
2019.

OPEC supply increased, but OPEC maintained its forecast for U.
S.
shale oil production unchanged
.
The report also showed that OPEC production increased
as OPEC+ phased out last year's record production cuts.
At its Dec.
2 meeting, OPEC+ agreed to raise monthly output by 400,000 b/d
in January.

OPEC output rose 290,000 b/d to 27.
72 million b/d in November, mainly due to higher
output from Saudi Arabia and Iraq, the two largest producers, the report showed.
Meanwhile, Nigeria's crude oil production averaged 1.
27 million b/d in November, regaining the top spot
as a producer of African crude, according to OPEC's latest monthly report.

Investors are equally concerned about signs of a sharp rebound in U.
S.
shale oil supply, as higher oil prices spur more investment, which could adversely affect
OPEC+'s efforts to support the market.
But this month, OPEC's forecast for U.
S.
shale production growth in 2022 was largely stable at 600,000 b/d
.
The growth forecast for total supply from non-OPEC countries in 2022 remains unchanged
.

The report shows that OPEC now has room to further increase production
from November.
OPEC said it expects demand for OPEC crude to reach 28.
8 million b/d by 2022, up 200,000 b/d
from the previous month's forecast.

U.
S.
inflation is surging in support of commodity prices, led by oil prices

Inflation continues to spiral out of control! U.
S.
consumers expect prices of staple necessities to rise by 10 percent
.
U.
S.
inflation has soared in recent months, which supports commodity prices, led by oil prices
.

The latest Federal Reserve Bank of New York's consumer survey showed U.
S.
consumers' inflation expectations for the coming year rose to a new high of 6 percent, the 13th consecutive month of rise and the highest
since the survey began in 2013.

Consumer expectations for personal income growth in the coming year fell to 2.
8 percent from 3.
0 percent last month, the survey showed, suggesting that U.
S.
consumers estimate inflation will rise twice as
much as wages in the near term.

While the median expected 1-year inflation rate is 6.
0%, the upper bound of the 75th percentile reaches 9.
7%, meaning that at least 25% of respondents believe inflation will soar to near double digits
.
Meanwhile, 25 percent of respondents expect inflation to be at or below the "very low" level
of 3.
0 percent.

Uncertainty expressed about future inflation outcomes has increased in both the short and medium term, with both reaching new series highs
.
Other data from the survey also suggests that consumers now expect prices for most critical necessities to rise by 10 percent
in the coming year.

Among them, gasoline prices will increase by 9.
15%, food prices by 9.
24%, medical expenses by 9.
6%, and rents by 10.
03%.

The median change in expected changes in the cost of college education over the coming year increased by 1.
6 percentage points to 9.
1 percent, the highest level
since March 2015.

After apparently losing all control of the one-year forward inflation data, the Fed turned to focusing what remaining persuasiveness it had on long-term inflation expectations, noting that "the median three-year forward inflation expectation fell to 4.
0% from 4.
2% in September and October.
"
This is the first decline in the three-year indicator since June 2021 and the second since
October 2020.

Notably, both the Fed's 1-year and 3-year inflation expectations are now well above those of the recent University of Michigan Consumer Confidence Survey, which is 4.
9% and 5-10 years are still around
3.
0%.
Both numbers are expected to continue to rise
in the coming months.

The report also contains information on labor market and household spending, showing widespread unease and frustration in the overall U.
S.
economy
.
Average unemployment expectations, the average likelihood of the unemployment rate rising after one year, rose 0.
6 percentage points to 36.
1 percent
.
The average perceived probability of unemployment in the next 12 months increased from 11.
0% to 13.
0%, and the average probability of voluntary resignation in the next 12 months also increased from 20.
0% to 20.
2%.

The surge in natural gas prices in Europe supports oil prices

Lukashenko wants to sacrifice "natural gas weapons" and prompts Europe to "calmly" think about the future of
bilateral relations as Europe enters a cold winter.
As the largest supplier of natural gas to Europe, Russia has several gas pipelines
to Europe.
Previously, the much-watched Russian-German gas pipeline "Nord Stream 2" was one of
them.
This time, Belarus threatened to shut down gas pipelines
from Russia's Yamal region to Europe.

Although Russia has several gas pipelines to Europe, there are variables at the moment
.
For example, Nord Stream 2, which was originally scheduled to be ventilated before the end of the year, was stuck in the review process of German regulators at the last minute, so that the future of whether the pipeline can be put into operation on schedule is still uncertain
.
The gas pipeline to Europe through Ukraine has fallen into disrepair, and Ukraine has been found to have "intercepted" transit natural gas, so the gas pipeline to Europe through Ukraine is no longer the first choice
for Russia.

As an alternative route to ensure Europe's natural gas supply, the stability of this gas pipeline from the Yamal region to Europe is crucial
to whether Europe can survive the winter.

Europe, which has been trapped by a shortage of natural gas inventories and soaring electricity prices since the beginning of this year, obviously cannot afford more toss
.
European Total Gas Inventories (AGSI+) data shows that European gas inventories are currently only 62%.

And the agency's forecasts show that if this winter is as cold as ever, and the gas supply gap cannot be filled in time, the current stocks will only be enough until February next year
.

Once Belarus decides to shut down this gas pipeline to Europe, what will happen to Europe, which has entered the winter? Russian media believe that in order to avoid the embarrassment of Europe's lack of gas availability this winter, the top priority is to release "Nord Stream 2"
as soon as possible.

Unlike the Russian gas pipeline to Europe, Nord Stream 2 has the advantage that it bypasses Eastern Europe and delivers gas
directly to Germany through the Baltic Sea.
In terms of mileage alone, this route can save nearly 2,000 kilometers
compared to the gas pipeline through Ukraine.
Once fully ventilated, Russia could provide an additional 55 billion cubic meters of gas
per year to the EU.
This is undoubtedly a big plus for Europe
, which is currently in a tight supply of natural gas.

However, in view of the current confrontation between Russia and Ukraine, the new German Foreign Minister Annalena Baerbock (Annalena Baerbock), a new foreign minister from the Green Party, targeted "Nord Stream 2" on the 12th, saying that the pipeline did not comply with EU energy regulations and clearly gave a statement
that "it cannot be approved".
In addition, the United States, Britain, France, Italy and Canada, which are also members of the Group of Seven (G7), also warned Russia after the meeting, saying that Russia must exercise restraint in the confrontation situation, otherwise the West will make Russia's gains outweigh the losses
.

Tom Smith, head of natural gas analysis at ICIS, a market information services company? Some European energy traders had believed that Nord Stream 2 was expected to deliver some natural gas to Europe this winter, but Baerbock's statement hinted that the gas pipeline may continue to be delayed, causing the market to react and push prices back to high levels
.

For Germany, which is already energy-starved, the resurgence of natural gas prices is tantamount to adding insult
to injury.
According to German media reports, many German people denounced Baerbock and said that the German foreign minister should defend Germany's interests
.
Many Germans believe that stopping "Nord Stream 2" will indeed cost Russia a heavy price, but the EU is also no better, and the EU will face an energy crisis
if it is not careful.