SINGAPORE: Crude oil prices for two major benchmarks surged up to over 8 per cent after going down for four consecutive weeks.
According to details, Brent, the international benchmark for two-thirds of the world’s oil, gained 7.54 percent during the week to reach $75.15 from $69.88 a barrel. Similarly, the US West Texas Intermediate (WTI) reached $71.67 from $66.26, up by 8.16 percent during the week.
During the week, price for OPEC Basket increased 7.23 percent to $75.09 from $70.03, Arab Light price increased 5.04 percent to $75.21 from $71.60, while the price of Russian Sokol went up 5 percent to $75.71 from $72.10 a barrel.
Oil prices have eroded between 50-60 percent of their post-Omicron emergence decline. This recovery has been aided by growing confidence in the notion that the new Omicron variant is set to be far milder than past variants like delta.
Global crude oil started the last week on a positive note and recouped some of previous week’s losses on Monday, Tuesday and Wednesday by surging over 10 percent. However, crude prices fell over 3 percent on Thursday amid concerns over the Omicron coronavirus variant and its impact on oil demand as well as nuclear talks with Iran.
Friday remained a positive session and prices surged around one percent, as a not as bad as feared US inflation report for November spurred some risk-on sentiment across markets which had clearly been positioning for an upside surprise on expectations. This favoured crude oil prices at the time. It seems the oil market has rightly priced out the worst-case scenario, the potential economically harmful reaction to Omicron that some governments might already have taken.
Travel restrictions and work-from-home directives are a direct threat to fuel demand and one that markets aren’t taking lightly after the UK upped its Covid-19 curbs by implementing “Covid-19 Plan B” earlier in the week. This seems to be what is preventing oil from emulating the US stock market and recovering back to its pre-Omicron levels.
Early data suggests the virus is significantly more transmissible than prior variants so global infection rates are bound to surge. Market participants will be nervously watching hospitalisation rates, which have so far not shown signs of a significant rise in South Africa.
Once uncertainties brought by Omicron dissipate, the relative market tightness and low inventories should keep prices on an upward trajectory.
