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As Omicron Worries Ease, Oil Prices Rise More Than $1/bbl

As Omicron Worries Ease, Oil Prices Rise More Than $1/bbl

07-12-2021 10:57

ZFX – Oil prices extended their gains on Tuesday from a nearly 5% rebound from the day before as concerns about the impact of the Omicron coronavirus variant on global fuel demand eased while Iran nuclear talks stalled, delaying the return of Iranian crude.

Brent crude futures were up $1.12, or 1.5%, to $74.20 a barrel by 0720 GMT, after settling 4.6% higher on Monday. US West Texas Intermediate crude was at $70.71 a barrel, up $1.22, or 1.8%, building on the previous session’s 4.9% gain.

Oil prices took a hit last week on concerns that a vaccine might be less effective against Omicron, fueling fears that the government could reimpose restrictions to curb its spread and hit global growth and oil demand.

However, a South African health official reported over the weekend that Omicron cases there were showing only mild symptoms. Also, the top US infectious disease official, Anthony Fauci, told CNN “there doesn’t seem to be a major degree of severity” so far.

“This lowers the likelihood of the worst-case scenario that the oil market has priced in over the past few weeks,” ANZ analysts said in a note.

In another sign of confidence in oil demand, world’s top exporter Saudi Arabia raised its monthly crude prices on Sunday. This comes after the Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, agreed to continue increasing output by 400,000 bpd in January despite the release of strategic US oil reserves.

Crude imports from the world’s top importer China also rebounded in November while a Reuters poll showed US crude inventories likely fell for a second straight week last week. [EIA/S]

In addition, the delay in the return of Iranian oil prices is supported. Indirect US-Iran nuclear talks have hit a snag. Germany urged Iran on Monday to present realistic proposals in talks over its nuclear program.

“While negotiations could still find success when they restart later this week, markets may need to consider a longer delay for Iranian oil exports,” Commonwealth Bank of Australia (OTC:CMWAY) commodities analyst Vivek Dhar said in a note.

“That is positive for oil prices and supports OPEC+ plans to increase oil production through 2022.”

Meanwhile, Iraq has also expressed optimism over higher demand and prices while global oil and gas executives warn of underinvestment and the need for fossil fuels despite a push for cleaner energy.

“It appears that the major oil price sell-off has ended as the mid-$60s has provided strong support and has been accompanied by a reminder that the oil market will remain vulnerable to some shortfall over the next few years,” OANDA analyst Edward Moya said in a note.

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