Oil dips below $78 as early 2022 rally peters out

KEY POINTS

• Libyan output to drop 200,000 bpd due to pipeline maintenance
• OPEC+ meets on Tuesday, expected to confirm existing policy

Oil pipeline and refinery.

Michael Krakowiak | Getty Images

Oil slipped below $78 a barrel on Monday as OPEC+ looked set to agree to a further oil output increase and concern persisted about the demand impact of rising coronavirus cases, despite hopes of a further recovery in 2022.

OPEC and its allies, or OPEC+, are expected on Tuesday to agree to the output hike. 

The omicron coronavirus variant has brought record case counts and dampened New Year festivities worldwide, with more than 4,000 flights cancelled on Sunday.

Brent crude was down 42 cents, or 0.5%, to $77.36 a barrel at 1402 GMT, having earlier risen as high as $79.05. U.S. West Texas Intermediate (WTI) crude slipped 52 cents or 0.7%, to $74.69.

"Infection rates are on the rise globally, restrictions are being introduced in several countries, the air travel sector, amongst others, is suffering, yet investors' optimism is tangible," said Tamas Varga of oil broker PVM.

"In a nutshell, 2021 demonstrated that the war against the coronavirus is a winnable one although the path to victory is paved with unexpected twists and turns."

Many U.S. schools that would normally welcome students back to classrooms on Monday are delaying their start dates, scrambling to test pupils and teachers and preparing, as a last resort, to return to remote learning as record COVID-19 cases from the Omicron variant sweep the country. 

Oil gained some support earlier in the session from an outage in Libya. Oil output will be cut by 200,000 barrels per day for a week due to pipeline maintenance.

Last year, Brent rose 50%, spurred by the global recovery from the COVID-19 pandemic and OPEC+ supply cuts, even as infections reached record highs worldwide. 

Some see more gains in 2022.

"Crude and oil product prices should benefit from oil demand moving above 2019 levels," said a report from UBS analysts including Giovanni Staunovo. "We expect Brent to rise into a $80–90 range in 2022."