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Oil futures traded lower Monday, giving back a portion of last week’s rebound, as worries over the spread of the omicron variant of the coronavirus that causes COVID-19 cast some uncertainty over the outlook for demand.
Losses were trimmed somewhat, however, 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.”
West Texas Intermediate crude for January delivery
CL00,
CLF22,
fell 71 cents, or 1%, to $70.96 a barrel on the New York Mercantile Exchange. February Brent crude
BRN00,
BRNG22,
the global benchmark, declined 72 cents, or 1%, to $74.43 a barrel on ICE Futures Europe.
Last week, WTI, the U.S. benchmark, jumped 8.2%, the sharpest weekly gain since a 10% rise in the period ended Aug. 27, according to Dow Jones Market Data. Brent, meanwhile, climbed 7.5%, based on the front-month contract settlement from last Friday, also logging its steepest weekly advance since late August.
U.K. Prime Minister Boris Johnson on Sunday warned that Britain faces a “tidal wave” of infections from the omicron variant, announcing an increase in booster vaccinations to strengthen defenses against it.
“It looks like COVID is once again the culprit as the rapidly spreading omicron variant raises serious concerns over demand for crude oil as countries go back in partial or full lockdown,” said Fawad Razaqzada, analyst at ThinkMarkets, in a note. “Even milder restrictions such as working from home reduces oil demand as people no long commute to work.”
In its monthly report, OPEC shifted some expected demand from the current quarter to early 2022 as a result of the omicron spread, but left its outlook for oil-demand growth in 2021 and 2022 unchanged.
A lack of evidence that omicron is causing severe disease has blunted the impact on crude prices, Razaqzada said, and explains why oil prices bounced back strongly last week, though “the path of least resistance is likely to be to the downside for a while, even if we don’t see significant falls” in crude prices.
In addition to the impact of omicron, demand concerns are on the rise due to struggles of some emerging market economies and oil consumer nations, he said.
