- Global infections surge amid omicron spread.
- Prompt Brent structure weakest since March.
- Forward demand outlooks remain intact.
A recent news article published in the Platts states that crude retreats as market eyes omicron surge, stronger dollar.
Crude prices moved lower
Crude prices moved lower Dec. 17 as a stronger US dollar and the fast-spreading omicron coronavirus variant put a dent in near-term outlooks.
NYMEX January WTI settled $1.52 lower at $70.86/b and ICE February Brent declined $1.50 to settle at $73.52/b.
Omicron is advancing rapidly
The omicron coronavirus variant is advancing rapidly worldwide and an increasing number of countries are introducing restrictions limiting internal and external movements.
Second-month Brent settled at parity to the front-month contract, marking the weakest prompt month spread since March 30 when the contracts were in a 3 cent/b contango.
The seven-day moving average of new coronavirus cases in New York City reached 4,142 Dec. 16, the New York Times reported, the highest since early April and nearly 25% more than what was seen this time last year.
NYMEX January RBOB fell 5.61 cents to settle at $2.1217/gal and January ULSD declined 4.64 cents to $2.2199/gal.
US and European monetary policies
The US dollar was testing month highs on the heels of a hawkish pivot in US and European monetary policies this week.
The ICE US Dollar Index pushed to 96.62 in afternoon trading, on pace for the highest close since Nov. 25.
Unexpected interest rate hike
The Bank of England announced an unexpected interest rate hike Dec. 16, becoming the first major central bank to do so since the start of the pandemic. The European Central Bank, meanwhile, held its target interest rate at zero but said it would further cut its bond purchases.
Earlier this week, the US Federal Reserve announced it would accelerate tapering of its bond purchasing and pointed toward three interest rate hikes in 2022.
“Crude prices were lower on both a strong dollar and as omicron concerns grow as the current virus surge will likely lead … some Americans to cancel holiday travel plans,” OANDA Senior Market Analyst Edward Moya said.
“COVID news may continue to be a drag for oil prices for the rest of the year, but prospects of $100[/b] oil at some point next year will lead to some buying on every critical support level.”
Rising oil demand in 2022
Goldman Sachs predicted that rising oil demand in 2022 will lead to higher-than-expected crude prices and underinvestment in supply.
Damien Courvalin, the bank’s head of energy research, also predicted air travel restrictions would soften. “Until very recently, countries like Australia, New Zealand, and Singapore were very aggressive on limiting international transfer. That’s easing,” he said.
Analysts also pointed to technical aspects for the price weakness.
“Oil prices are pulling back after failing to complete the process of breaking out of a bullish pennant formation against a backdrop of a falling stock market,” Price Futures Group analyst Phil Flynn said.
“Yet even as we play these technical games, we believe that at some point there will be a breakout to the upside. We think that the tightening cycle around the globe will not slow demand enough to create an oil surplus.”
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Source: Platts
