For the time being, demand has held up well against the spread of omicron across the globe and speculators have boosted their net-bullish bets on the global Brent benchmark to a six-week high as a result.
Traders are focused on China, however, which is continuing to battle outbreaks of the virus. The world’s largest oil importer ignited a mass testing blitz in the northern port city of Tianjin as the country strives to maintain its zero-tolerance approach to Covid-19 in the face of more transmissible variants.
“Crude oil trades steady with focus on robust demand and so far a limited fallout from the omicron surge,” said Ole Hansen, head of commodities strategy at Saxo Bank A/S. “Countering the short-term threat of even higher prices are easing supply disruptions in Libya and Kazakhstan, but overall demand remains robust.”
Crude has made a strong start to 2022, pushing higher on a combination of optimism about global demand coupled with interruptions to supplies. That’s tightened the market, helping near-term time spreads firm into a bullish, backwardation structure. While the Organization of Petroleum Exporting Countries and its allies have agreed to boost output further, there’s concern the group may not be able to deliver the planned amount in full.
The Brent market is in backwardation, a bullish pattern marked by near-term prices commanding a premium to those further out. The global benchmark’s prompt spread was 70 cents a barrel in backwardation on Monday, up from 41 cents a week ago.