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Oil Slides After Last Week’s Rally as Traders Weigh Virus Risk


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(Bloomberg) Oil fell in New York after its biggest weekly jump in three months as traders weighed the risks from the omicron variant, and physical markets showed further signs of softening.

West Texas Intermediate futures slipped 0.7% to trade near $71 a barrel, reversing earlier gains as confidence that fuel consumption will withstand the new virus strain — which propelled crude 8.2% higher last week — fluctuated.

U.K. Prime Minister Boris Johnson has said the country faces an emergency from omicron and declined to rule out further restrictions to contain it. There have been some indications that high prices have sapped consumption in Asia, and the structure in the North Sea market is coming under pressure.

“Risk-reward is not attractive, with the omicron spread in the initial phase,” said Helge Andre Martinsen, senior oil analyst at DNB Bank ASA in Oslo.

WTI oil slips as market weighs omicron risk

This month oil has staged a partial turnaround — after tumbling into a bear market at the end of November — on signs that nervousness around omicron might have been overdone. Iraq’s oil minister said on Sunday that he doesn’t see any impact yet from the latest outbreak.

Still, traders are unsure how much scope there is for a further recovery with so much uncertainty in the outlook.

Prices:
  • WTI for January delivery declined 0.7% to $71.15 a barrel by 8 a.m. local time on the New York Mercantile Exchange.
  • Brent for February settlement fell 0.8% to $74.56 on the ICE Futures Europe exchange.
    • The benchmark’s prompt timespread was 18 cents in backwardation, compared with 39 cents a week earlier.

In Asia, buyers didn’t ask Saudi Arabia for additional cargoes last week after the kingdom hiked prices this month. Dated to front-line swaps, used to hedge crude cargoes in the North Sea, are currently trading at discounts of about 50 cents a barrel, according to data compiled by Bloomberg. They were at premiums before omicron really hit markets.

The Brent crude structure itself is weakening, with the spread between the second and third monthly futures contracts at about 31 cents a barrel, down from 63 cents on Nov. 24.

Prices drew some support from forecasts that Beijing will start adding fiscal stimulus in early 2022 after the country’s top officials said their key goals for next year include stabilizing the economy. That should further improve sentiment in the market, given the Asian nation is the world’s biggest oil importer.

“The omicron fears are certainly continuing to shift away from the worst-case scenario,” said Vandana Hari, founder of Vanda Insights in Singapore. “The higher transmissibility is not in doubt, but the worst-case fears of a spike in hospitalizations and deaths are certainly receding. Crude still has some more ground to reclaim.”

Other oil-market related news:
  • The U.S. Energy Department confirmed that it will issue a sale notice for 18 million barrels from the SPR on Dec. 17. The other five participating nations have yet to follow through on reserves sales, however.
  • Saudi Arabia’s finance minister echoed warnings from the kingdom’s oil officials that a slowdown in fossil-fuel investment globally will cause spikes in energy prices.
  • Foreign ministers from the Group of Seven nations on Sunday warned Russia to de-escalate its activities around Ukraine or face “massive consequences,” without spelling out potential measures.


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