Karachi, December 17, 2021 (PPI-OT): Pakistan Oil and Gas: Oil prices – Stability ahead

The uncertainty surrounding the Omicron variant of COVID-19 and roll-back of economic stimulus provided by central banks around the world has kept WTI index under pressure resultantly. It is now well below October’s 3yr highs above US$84/bbl but still more than 30% up on the start of CY21.

The supply side dynamics also look unfavourable as OPEC+ is planning to add 400k barrels per day (bpd) in production from Jan’22 while the US is also planning to release some of its stockpiles in order to ease prices.

The United States has repeatedly pushed OPEC+ to accelerate output hikes as US gasoline prices soared. If the output increase helps keep the prices stable at current levels, the US may “show flexibility” over the release of its reserves but the development may keep the prices of the commodity in check in short term.

We expect the prices will average US$73/bbl in the 1QCY22. While, as for CY22 as a whole, we expect that growth in production from OPEC+ and from other non-OPEC countries will outpace slowing growth in global oil consumption, especially in light of renewed concerns about COVID-19 variants. Therefore, we expect prices will remain near current levels throughout CY22, averaging US$75/bbl.

From Pakistan’s vantage, easing-off prices will help alleviate pressures on CAD which had started to ring alarm bells once again. We continue to highlight POL as top pick from our E and P universe owing to its limited exposure to circular debt, offering a total return of 49% on the last close.