Americas News
More Losses For Oil As Analysts Fret Over Omicron's U.S. Arrival
Media hype over the first U.S. case of the omicron variant sent shock waves through financial communities, and as expected oil prices on Wednesday suffered another decline, with West Texas Intermediate falling by 1 percent.
Ed Moya, senior market analyst at Oanda Corp, explained why this mildest form of Covid, which many scientists suspect could spell the end of the pandemic, has spooked so many of his colleagues.
He said, "It was inevitable that omicron would make it to the US, but when you combine how quickly it appears to be spreading across South Africa, energy traders are getting more concerned about the short-term outlook; if omicron is much more transmissible we could see large parts of the country enter lockdown mode."
Bloomberg noted that although oil remains in backwardation - a bullish structure with near-term contracts trading above later-dated ones - differentials have narrowed, with Brent's prompt spread being 30 cents per barrel, down from $1.20 last week.
Adding gloom to traders' outlooks on Wednesday was the U.S. government reporting that while overall crude inventories fell, stockpiles at Cushing, Oklahoma, rose for the third straight week; gasoline inventories also rose 4.03 million barrels, the biggest week-over-week build since June.
Still, those who have assessed omicron dispassionately remain bullish on oil, case in point: Bank of America on Wednesday maintained its $85 per barrel forecast for oil in 2022, with possible surges past $100 if air travel rebounds.
Francisco Blanch, the bank's head of commodities, said in a presentation that omicron could "dislocate the trajectory a bit from recovery but we don't know how it will play out," and he added that the U.S. doesn't intend to reinstate lockdowns to stop the variant's spread.
Christopher Wood, global head of equity strategy at Jeffries, was also cautiously optimistic: he said, "In a really fully reopened world, the oil price could go to $150 because the supply constraints are dramatic."
Wednesday also saw the Organization of the Petroleum Exporting Countries (OPEC) and its allies meet via video conference; although details of the event weren't forthcoming at press time, there was little indication it intended to deviate from its current output plan of a monthly hike of 400,000 barrels per day.
