Crude Oil Rebounds As Omicron Fears Linger in Background

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Crude oil futures are clawing back their losses to kick off the trading week as investors calm down and reassess the omicron variant risk. After both West Texas Intermediate (WTI) and Brent contracts plummeted as much as 13% on the news, can energy prices restart their rally and head toward the promised land of $100?

January West Texas Intermediate (WTI) crude oil futures soared $4.50, or 6.6%, to $72.68 a barrel at 13:35 GMT on Monday on the New York Mercantile Exchange. Although US crude prices are poised for a 13% loss in November, they are still up about 50% year-to-date.

Brent, the international benchmark for oil prices, is testing $76. February Brent crude futures advanced $4.12, or 5.75%, to $75.71 per barrel on London’s ICE Futures exchange. Brent is also on track for a monthly decline of more than 10%, but it is up 47% this year.

On Monday, crude prices recouped a tremendous amount of their losses, with global financial markets also normalizing after the steep selloff. The World Health Organization (WHO) has yet to offer any clear information pertaining to the omicron variant of concern, confirming that it is still studying a broad array of factors, like reinfection risks, aversion to vaccine efficacy, and severity.

This allowed the equities arena to take a deep breath and calm down.

“The decline in the oil price, over concerns that any new restrictions could impact demand also appears somewhat overdone, which helps explain this morning’s subsequent rebound, although it will be welcome news for beleaguered consumers, who have had to endure sharp increases in petrol prices,” said Michael Hewson, chief market analyst at CMC Markets, in a note to clients.

Does this mean oil prices are back on target for $100 and even $125? It might depend on the upcoming meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, OPEC+.

With the omicron variant and countries tapping into their strategic reserves, market analysts anticipate that the cartel will likely pause its increase of 400,000 barrels per day next year.

“This underperformance comes at a critical juncture as other global producers falter,” JPMorgan Chase strategists noted. “The group has returned to a position of positive leverage, which it will defend by keeping inventories low, the market in balance and taking action to support optimal reservoir management through paced volume growth.”

This, they say, could allow oil to hit $125 per barrel next year and even $150 a barrel in 2023.

In other energy commodities, January natural gas futures crashed $0.612, or 11.17%, to $4.865 per million British thermal units (btu). January gasoline futures added $0.1299, or 6.56%, to $2.1110 per gallon. January heating oil futures rose $0.1272, or 6.08%, to $2.2179 per gallon.

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