Oil Price Fundamental Daily Forecast – Buyers Pull Bids, Shorts Return Amid New Omicron Fears

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are inching lower on Thursday after giving back earlier gains. The price action reflects uncertainty over the impact of the Omicron coronavirus variant on global economic growth.

At 10:51 GMT, January WTI crude oil is trading $72.15, down $0.21 or -0.29% and February Brent crude oil is at $75.47, down $0.35 or -0.46%. On Wednesday, the United States Oil Fund (USO) ETF settled at $52.44, up $0.85 or +1.65%.

According to reports, some analysts feel the markets have been overcooked to the downside with oil-demand concerns being fueled by negative headlines. Those came out on December 1. Since then, most of the headlines have been more optimistic, leading to this week’s strong short-covering rally.

Prices have retraced between 50% – 61.8% of their sell-off, which is a normal correction. This suggests the buying and selling has become balanced. But we know that won’t last long. Since Omicron news has driven the market both down and up, we see no reason for this to change over the near-term.

As long as the Omicron headlines remain balanced, prices are likely to remain balanced or rangebound.

New Omicron Headlines Weighing on Prices

When the news of the Omicron coronavirus variant hit the markets, prices fell sharply as traders conjured up images of renewed demand destruction and slower economic growth. Most countries limited travel, while other considered new restrictions.

Prices began to rebound when South African scientists said the symptoms of Omicron were “mild”. Similar comments by U.S. medical expert Dr. Fauci over the weekend helped extend the rally.

The markets started to stabilize when Pfizer-BioNTech officials offered a mixed assessment, saying two shots of its vaccine may protect only partially against Omicron, but a third dose may improve that protection.

Then on Wednesday, Pfizer CEO Albert Bourla said that people might need a fourth COVID-19 shot sooner than expected because of the omicron variant.

Also on Wednesday, the World Health Organization (WHO) said the highly mutated omicron variant of COVID-19 could “change the course of the pandemic.”

Meanwhile, the rise of omicron COVID cases in the U.K. is on such steep trajectory that the country has been told to brace for one million cases by the end of the month.

“If the growth rate and doubling time continue at the rate we have seen in the last 2 weeks, we expect to see at least 50% of coronavirus cases to be caused by omicron variant in the next 2 to 4 weeks,” the UK Health Security Agency said in a statement.

Short-Term Outlook

The news, or at least the uncertainty over the impact of Omicron seems to have taken a turn to the negative side. This may be enough to stop the short-covering rally, but perhaps not enough to drive it back to last week’s multi-month lows.

With the WHO still saying the exact impact of Omicron is “still difficult to know” and scientists across the world scrambling to determine just how contagious and lethal the mutated virus has become, I expect crude oil traders to remain cautious until they find out what to expect.