Oil prices reach four-week high as markets account for Omicron

Oil rose in tandem with equity markets as investors weighed the rapid spread of omicron against signs it may be milder than previous variants.

 

West Texas Intermediate futures surpassed US$75 a barrel on the 27th December for the first time in a month amid light trading. Daily omicron infections in the US have surpassed those in the delta wave, CNN reported, while China posted the highest number of cases since January.

 

Thousands of flight delays and cancellations in the US stemming from airline-employee illnesses were a reminder that the more infectious Covid variant could still wreak havoc.

 

Despite the omicron spread and airline cancellations, mobility numbers were strong over the holiday, said John Kilduff, founding partner at Again Capital LLC. The strong economic activity has played into a “rebound in petroleum demand, which we saw this morning.”

 

Oil is heading for a yearly gain after a robust rebound from the pandemic, but the rally has wavered in recent weeks, in part due to concerns about omicron. There are some signs of softening consumption in Asia and crude market’s structure has weakened significantly, indicating over-supply in the near term.

 

The market structure for international benchmark Brent crude is starting to show signs of optimism. The prompt time-spread — the gap between the two nearest contracts — has returned to a bullish pattern in recent days after flipping briefly into a bearish contango structure.

 

The spread was 33 cents in backwardation on the 27th December, compared with as much as 10 cents in contango about a week ago.

 

Prices:

  • WTI for February delivery rose US$1.82 to US$75.61 a barrel at 12:53 pm in New York

 

  • Brent for February settlement rose US$2.51 to US$78.65 a barrel

 

The fast-spreading omicron has forced airlines to cancel some services due to crew shortages, threatening a nascent rebound in jet fuel usage.

 

Anthony Fauci, President Joe Biden’s top medical adviser, said Americans should stay vigilant against the new strain, despite evidence its symptoms may be less severe, because the volume of cases can still overwhelm hospitals.

 

Meanwhile, negotiations to resurrect the nuclear deal between Iran and world powers are moving toward a state of limbo. An Iran nuclear accord could pave the way for a resumption of official crude flows. The European Union said negotiators needed to speed up efforts to resolve a standoff between Tehran and Washington.

 

Source: WorldOil