Clashing Views Over Omicron Result In A Tepid Rise In Oil Prices

Meanwhile, U.S. data strongly suggests that demand is just fine: File Image/Pixabay

While unable to escape the rampant fears of demand destruction due to the omicron variant, crude traders on Wednesday caused a minor rise in prices based on the U.S. Federal Reserve's shift to a tighter monetary policy in order to combat inflation.

After the central bank said it will double its pace of scaling back purchases of treasuries and mortgage-backed securities, West Texas Intermediate rose 14 cents to settle at $70.87 per barrel; Brent settled up 18 cents at $73.88 per barrel.

Another indication that demand is steady was the Energy Information Administration on Wednesday reporting that total U.S. stockpiles fell 4.58 million barrels last week; much of the drop came from a draw on the Gulf Coast, where exports jumped 61 percent.

Brian Kessens, a portfolio manager at Tortoise Capital Advisors, said the increased exports verify that demand is strong "even relative to the impact of the omicron variant."

But the oil sector is still extremely cautious on Omicron, and prices earlier in the session weakened with reports that the U.K. had the most new daily coronavirus cases since the pandemic began, fortifying the belief that inventories will accumulate more rapidly next year.

Stephen Brennock, an analyst at PVM Oil Associates Ltd., said, "Supply has finally caught up with demand and this trend is forecast to intensify heading into 2022.

"Simply put, the oil market faces a significant oversupply next year."

Reuters noted the dramatically different forecasts for crude prices emerging from the analytical community, pointing out that the Organization of the Petroleum Exporting Countries (OPEC) and Rystad Energy maintain that omicron impact will be mild and short lived, and that Suhail al-Mazrouei, energy minister for the United Arab Emirates, described the oil market as being "in a good condition."

Some of the differing opinions may be the result of the way news is transmitted, for example: while the International Energy Agency said global oil supplies are rebounding and demand for jet fuel has started dropping in response to omicron, less focus was paid to its follow-up observation that the impact is likely to be limited as vaccine booster campaigns roll out globally.