Oil Prices End Lower As Traders Watch Omicron Spread, Fed Decision This Week

Oil prices ended lower on Monday, with traders monitoring the spread of the omicron variant of the coronavirus that causes COVID-19, and looking to the Federal Reserve’s monetary policy decision this week for clues on the economic outlook and energy demand.

Prices have seen little support after the Organization of the Petroleum Exporting Countries, in its monthly report, said it expected the impact of the omicron variant to be “mild and short-lived.”

In its monthly report, OPEC moved some of the expected demand from the current quarter to early 2022 due to the omicron spread, but left its outlook for oil demand growth unchanged in 2021 and 2022.

“So far Omicron doesn’t look deadly, but concerns remain about the potential destruction of demand for oil,” said Phil Flynn, senior market analyst at The Price Futures Group. British Prime Minister Boris Johnson has warned of a “tidal wave” of new omicron variant infections and one death, but the “oil market is trying to look beyond”.

Crude West Texas Intermediate for delivery in January CL00,
-0.39%

CLF22,
-0.39%
fell 38 cents, or 0.5%, to $ 71.29 a barrel on the New York Mercantile Exchange. February Brent gross BRN00,
-0.38%

BRNG22,
-0.38%,
the global benchmark, fell 76 cents, or 1%, to $ 74.39 a barrel on ICE Futures Europe.

Last week, the WTI, the US benchmark, jumped 8.2%, the largest weekly gain since rising 10% during the period ended Aug. 27, according to Dow Jones Market Data. Brent, meanwhile, rose 7.5%, based on the settlement of the first month contract last Friday, also recording its strongest weekly advance since late August.

“It looks like COVID is the culprit again, as the rapidly spreading omicron variant raises serious concerns about demand for crude oil as countries return to partial or full lockdown,” said Fawad Razaqzada, analyst at market at ThinkMarkets, in a note. “Even lighter restrictions such as working from home reduce the demand for oil as people no longer come to work. “

A lack of evidence that omicron causes serious illness has mitigated the impact on crude prices, Razaqzada said, and explains why oil prices rebounded strongly last week, although “the path of least resistance is likely to be down for some time, although we don’t see any significant “declines in crude prices.”

In addition to the impact of the omicron, demand concerns are increasing due to the difficulties of some emerging market economies and oil consuming countries, he said.

Oil is also expected to take inspiration from “this week’s parade of central bank meetings before settling in, as many traders leave their desks for the last two weeks of the year,” said Matt Weller, global head of research at FOREX.com and City. Index, in a note.

The European Central Bank is also meeting later this week after the Fed.

Read: Highest U.S. inflation in nearly 40 years will strain the Federal Reserve’s hand

If the Fed gets too aggressive with interest rates, “it may slow the economy down, but I think those fears are a bit overblown,” Flynn of the Price Futures Group told MarketWatch.

For now, this is probably more of a “trade of concern” for oil due to the weakness in the US stock market, he said.

On Monday Nymex, petroleum product prices also ended lower, with January RBF22 gasoline,
-0.12%
down 1% to $ 2,117 per gallon and January HOF22 heating oil,
-0.07%
lost 0.8% to $ 2.233 per gallon.

Natural gas for January delivery NGF22,
+ 0.08%
came in at $ 3.794 per million British thermal units, down 3.3%, after posting a 5% loss last week.


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Felix J. Dixon