Oil Heads Toward Yearly Gain As Demand Trumps Omicron Concerns

Oil Heads Toward Yearly Gain. File Image / Pixabay

Crude traders on Monday solidified their position that the now-dominant omicrom strain is the mildest form of Covid yet and caused oil prices to rise to a monthly high – and contribute to what is shaping up to be a yearly gain.

West Texas Intermediate closed 2.4 percent higher, trading above $75 per barrel for the first time in a month after signs that mobility numbers were strong over Christmas; this is despite thousands of U.S. flight cancellations due to airline-employee illnesses.

As for Brent, its prompt time spread has returned to a bullish pattern at 38 cents in backwardation on Monday, compared with 10 cents in contango about a week ago.

Underscoring all this was a Mastercard Inc. survey showing a substantial rise in U.S. holiday season retail sales, which in turn lifted a gauge of stocks across the globe by 0.87 percent.

Jawaid Afsar, sales trader at Securequity, said, "Heading into 2022 we will still have Covid uncertainties but the good news is that, according to the WHO, we may be see the end of the pandemic towards the end of year."

However, despite demand remaining strong and consistent even during the worst of the delta variant, many analysts have mixed feelings about the health of the market moving forward, as exemplified by Julian Lee, oil strategist for Bloomberg.

On Monday he wrote that the Organization of the Petroleum Exporting Countries (OPEC) "faces the return of oversupply and a growing need to cut output once again, [and] at the same time it faces pressure from consumer countries, worried by soaring inflation, to keep spigots open.

"But assuming that demand continues to recover, it won't be long until the main concern is the group's ability to pump all the oil the world needs, even as we attempt to transition away from fossil fuels."

One factor that could influence oil prices in the near term is the possibility of Iran returning to the world stage as an oil exporter, and on that score talks between world powers and the Islamic republic resumed on Monday in Austria.

Iranian media quoted foreign minister Hossein Amirabdollahian as saying, "The most important issue for us is to reach a point where, firstly, Iranian oil can be sold easily and without hindrance."

Due to the U.S. sanctions, Iran's oil exports have fallen from about 2.8 million barrels per day (bpd) in 2018 to as low as 200,000 bpd, according to estimates.