Oil Falls As Worry Outweighs Optimism on Omicron

Even cautious OPEC is raising its demand estimates for Q1 2022: File Image/Pixabay

A host of positive markers on Omicron impact today failed to reassure oil traders on the potential for the latest COVID variant to have a negative impact on oil demand, sending crude prices down in the process - albeit at a diminished rate compared to recent sessions.

West Texas Intermediate fell 38 cents to settle at $71.29 per barrel, while Brent settled down 76 cents at $74.39 per barrel.

Rebecca Babin, senior energy trader at CIBC Private Wealth Management, explained Monday's trading behaviour by remarking, "We're at the end of the year, it's very difficult to want to make a big bet either way: people may want to do small things here or there, but it's going to be more of a dance rather than step up and hit a home run."

The fluctuating confidence about demand is due to the ever-present problem of a wide range of opinion over how serious - or not - the new variant could be; some top analysts believe omicron will be a mild version of Covid that may even spell the end of the pandemic, while others see their concerns validated by the reaction of governments such as in the UK, where politicians are likely to vote in a the introduction of further COVID restrictions.

Ironically, a number of credible voices believe not only will demand not be dented, but also has the potential to grow: that was the contention on Monday of Natasha Kaneva, global head of commodities research and strategy at JP Morgan, who told Bloomberg television that "We do not see any impacts on demand from omicron," and that while mobility in many parts of Europe are flat due to government restrictions, "at the same time it is surging in countries like Brazil, India…….and Chinese mobility is back to the levels of 2019."

Kaneva added that jet travel "has been rising steadily across every single region…there's clearly no fear," and she concluded that the impact of the variant will be "mild and short-lived."

Indeed, the Organization of the Petroleum Exporting Countries (OPEC), which has been cautious of Covid resurgences in calculating demand, increased  its forecast for global oil demand in the first quarter substantially, to 1.1 million barrels per day (bpd).

The cartel's latest monthly report says while this year's recovery has been delayed by omicron, the overall risk from the new virus strain remains limited.

In other oil news on Monday, after three weeks since the U.S. spearheaded an international release of oil from national reserves in order to rein in gas prices at the pump, the other five nations committed to the release have not yet acted.

John Driscoll, chief strategist at JTD Energy Services, theorized that the Asian nations in question "can't afford to jeopardize their relationships with major producers to satisfy a U.S. president who'll be up for re-election in a few years."

He added that they might also be "reluctant to tap into their reserves ahead of peak winter demand, when supply disruptions can lead to major issues."