Oil down marginally as Omicron variant continues to spread

Oil prices are down marginally in the London Session today, trimming big gains from the previous two sessions. This is due to uncertainty over near-term demand as cases of the highly contagious Omicron variant of the coronavirus surge around the globe.

The global benchmark, the Brent crude futures is down 0.05%, currently trading $84.60 a barrel, after rising 1.3% on Wednesday. The United States’ benchmark, the West Texas Intermediate (WTI) crude futures slipped is down 0.07%, currently trading $82.58 a barrel, after climbing 1.7% in the previous session.

Data from the U.S. Energy Information Administration on Wednesday also revealed fuel demand has taken a hit from Omicron, with gasoline stockpiles increasing by 8 million barrels in the week to Jan. 7, compared with analyst expectations for 2.4-million-barrel rise.

What you should know

Road traffic has thinned across Asia at the start of the year as the highly contagious omicron variant of the coronavirus sweeps through the region, flashing a bearish signal for oil demand.

Fewer vehicles have transited through most capital cities so far this month than in December, according to mobility data from Apple, as authorities renew restrictions to curb the spread of the virus. Omicron recently breached China’s tough Covid defences, prompting Goldman Sachs to reduce its 2022 growth forecast for the nation. Flight cancellations are also mounting in Asia.

OANDA analyst Edward Moya said in a note speaking on gasoline demand stated, “Gasoline demand was weaker-than-expected and still below pre-pandemic levels, and if this becomes a trend, oil won’t be able to continue to push higher.” However, Moya added, the Omicron impact is expected to short-lived.

The market had earlier latched on to a bigger drawdown than expected in crude inventories and the fact that stockpiles are at their lowest since October 2018, pushing Brent and WTI to touch their highest in two months on Wednesday.

Citi bank stated, “In reality, the weekly EIA report was less bullish than the headline number, as total crude oil inventories fell 4.8 million barrels but were more than offset by a stock build across refined products. The drop in crude inventories might have been related to end-of-year tax issues on oil stocks onshore in Texas and Louisiana.”

Still, U.S. supplies are set to rise as producers are paving the way for faster production by expanding well completions in the country’s top shale oil field, the Permian Basin of west Texas and New Mexico, according to research data.

Separately, concerns about inflation putting pressure on the Federal Reserve to speed up the timeline for kicking off interest rate hikes are weighing on markets.

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