After the rebound in prices during the week of Dec. 27, crude prices continued to increase last week. The price of Brent crude ended the week at $77.94 after closing the previous week at $75.59. The price of WTI ended the week at $75.45 after closing the previous week at $73.79. Crude prices were supported by a favorable inventory report from the U.S. Energy Information Administration (EIA). The report indicated that commercial crude inventories declined by 3.58 million barrels (Strategic Petroleum Reserve inventories in the U.S. decreased by 1.35 million barrels). Product inventories also decreased with gasoline inventories declining by 1.46 million barrels and diesel inventories declining by 1.73 million barrels.
The increase in crude oil prices has occurred despite the ongoing concerns about COVID-19 and the Omicron variant. Currently, COVID-19 cases from a global perspective are at all-time highs with the number of cases increasing by 68% during the last 14 days. The better news is that while the number of cases is rapidly rising, the number of deaths has declined by 12% during the last 14 days. While, Omicron was first identified in South Africa, Europe has been the region that has initially experienced significant increases in cases, and some European countries are still experiencing rising cases and deaths.
While COVID-19 and Omicron is getting significant media attention, we still think the response to Omicron, for the most part, will be muted in terms of limiting economic activity. The rationale is that focus will be on ramping up booster shots and more moderate mitigation efforts—as long as the rate of hospitalizations does not spike out of control—which we think is less likely because of the extend of vaccinations and that Omicron seem to result in milder cases. Also, because of the widespread nature of Omicron and high level of transmissibility, substantially more people will gain some immunity from COVID-19, and those people, along with the vaccinated people, will help accelerate the shift of COVID-19 from a pandemic to being endemic in nature, in which COVID-19 will still exist, but that there will be enough people with immune protection from vaccination and from natural infection, so there will be less transmission and much reduced level of hospitalizations and deaths.