Oil Falls After Last Week’s Rally as Traders Weigh Virus Risk
(Bloomberg) -- Oil slipped in New York as traders weighed the risks from the omicron variant and OPEC boosted its forecast for global crude demand.
West Texas Intermediate closed down 0.5% on Monday after gaining 8.2% the previous week. Confidence that fuel consumption will withstand the new virus strain fluctuated.
Omicron dented the protection afforded by two doses of Pfizer Inc.’s and AstraZeneca Plc’s Covid vaccines as feared, according to University of Oxford researchers, while U.K. Prime Minister Boris Johnson declined to rule out further restrictions to contain the variant. Meanwhile, OPEC increased its forecast for global oil demand in the first quarter substantially.
“We’re at the end of the year, it’s very difficult to want to make a big bet either way,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management. “People may want to do small things here or there, but it’s going to be more of a dance rather than step up and hit a home run.”
This month, oil has staged a partial turnaround -- after tumbling into a bear market at the end of November -- on signs that nervousness around omicron might have been overdone. Still, with risk appetite from traders diminishing toward the end of the year, worries about a demand hit from the omicron variant is keeping a lid on prices. Analysts also said technical factors were adding downward pressure.
For Brent crude, “with several technical levels converging around $76, I am not surprised at all with the selling pressure, especially in light of the macro factors,” said Fawad Razaqzada, a market analyst with ThinkMarkets.
From here, Brent oil could be heading back down to around $73, where the 200-day average is coming into play, Razaqzada said. The Brent crude structure itself is weakening, with the spread between the second and third monthly futures contracts at about 28 cents a barrel, down from 63 cents on Nov. 24.
OPEC increased its outlook for oil consumption in the first quarter to 1.1 million barrels a day, the equivalent to annual world consumption growth in a typical year before the pandemic. According to a monthly report from the group’s research department, this year’s recovery is delayed by omicron but the overall risk from the new virus strain remains limited.
The revision means that OPEC and its allies won’t create as big a surplus when they proceed with plans to continue reviving oil production in January. Even with the change, OPEC+ is likely to cause a new oversupply in early 2022 if it continues to restore output halted during the pandemic.
Prices also drew some support from forecasts that Beijing will start adding fiscal stimulus in early 2022 after the country’s top officials said their key goals for next year include stabilizing the economy. That should further improve sentiment in the market, given the Asian nation is the world’s biggest oil importer.
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