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Oil set for 6th straight weekly decline as Omicron jolts markets

Crude has dropped sharply since October as consuming nations have tapped their reserves and a new coronavirus variant has emerged.

By Bloomberg

Oil is poised for a sixth straight weekly decline as the omicron variant jolts markets and OPEC+ leaves the door open to adjusting output plans if the pandemic drastically shifts demand.

West Texas Intermediate crude futures pared earlier gains of 4.1% on Friday and are on track to post the longest stretch of weekly losses since 2018. The omicron variant continues to worry investors as the U.S. reported at least six states with cases, while Covid-19 infections in South Africa almost quadrupled since Tuesday. In Vienna, Iran negotiations were dismissed until next week, with a European envoy saying diplomats face substantial challenges that need urgent solutions.

“The short-term demand outlook was shaky at best and if the U.S. sees new restrictions, the oil market could see a supply surplus by the end of the month,” said Ed Moya, senior market analyst at Oanda Corp.

Crude has dropped sharply since late October amid moves by major consuming nations to tap their reserves and the emergence of the new virus variant. A more hawkish Federal Reserve was put in a tough spot Friday as U.S. jobs data missed expectations. Meanwhile, the sharp increase in volatility has oil traders heading for the exit, with open interest across the main oil futures contracts plunging to its lowest level in years.

“The bottom might have been reached on Thursday, unless we get some bad news on the new variant,” said Giovanni Staunovo, a commodity analyst at UBS Group AG.

Prices

  • West Texas Intermediate crude for January delivery rose 24 cents to $66.74 a barrel at 1:13 p.m. in New York
  • Brent for February settlement added 68 cents to $70.35 a barrel

Investors also focused on OPEC+’s decision to add 400,000 barrels a day of crude to global markets in January, essentially placing a floor under prices by giving itself the option to change the plan at short notice.

Prior to the meeting, OPEC+ ministers indicated they were concerned about the impact of omicron on crude demand but were struggling to figure out how serious the new strain would become. By effectively keeping its monthly meeting open, the alliance now has more flexibility to address price swings.

 




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