Oil Price Fundamental Daily Forecast – Omicron Threatens to Put a Brake on Consumption Globally

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher, but off their highs on Thursday after the markets ran into technical resistance.

Prices rose early in the session on follow-through buying tied to yesterday’s rebound rally. On Wednesday, crude oil reversed earlier weakness, supported by record U.S. implied demand and falling crude stockpiles, even as the spread of the Omicron coronavirus variant threatens to put a brake on consumption globally.

At 12:52 GMT, March WTI crude oil futures are trading $70.65, up $0.29 or +0.41% and March Brent crude oil is at $74.09, up $0.31 or +0.42%. On Wednesday, the United States Oil Fund ETF settled at $51.62, up $0.70 or +1.38%.

Crude oil prices were also boosted on Wednesday after the U.S. Dollar weakened, following a series of Federal Reserve tightening moves and an upbeat economic outlook. A weaker U.S. Dollar tends to drive up foreign demand for the dollar-denominated asset.

Nonetheless, buyers are still being cautious as the withdrawal of economic support by the Fed combined with the Omicron crisis are two major headwinds the oil market is currently facing.

US Fuel Demand Surges on Record Demand

U.S. implied consumer petroleum demand surged to an all-time high last week on the back of holiday demand and travel – even as the Omicron variant of coronavirus threatens to dent oil consumption in coming months, Reuters reported.

Overall crude stockpiles fell due to rising exports, and inventories for gasoline and distillates were also down, the U.S. Energy Information Administration said Wednesday.

Product supplied by refineries, a proxy for demand, surged in the most recent week to 23.2 million barrels per day (bpd), due to gains in gasoline, diesel and other refined products. The less volatile four-week average was 21.3 million bpd, ahead of pre-pandemic levels, and the strongest in December since 2018.

Inventories Fall as Exports Jump on Year-End Tax Considerations

Crude inventories fell by 4.6 million barrels in the week to December 10 to 428.3 million barrels, more than double expectations in a Reuters poll for a 2.1 million-barrel drop.

U.S. gasoline stocks fell 719,000 barrels in the week, while distillate stockpiles fell by 2.9 million barrels.

Daily Outlook

The two-day price surge may have been a knee-jerk reaction to the EIA data surprise. If Omicron continues to spread and economic growth starts to slow then demand could come to a crawl, erasing some of last week’s gains.

Additionally, worries about the virus and the prospect of a supply surplus next year, as flagged by the International Energy Agency in its monthly report this week, could continue to limit gains.

With Omicron still a wildcard, it’s difficult to comprehend that the strong demand and bullish market sentiment will be carried over the next several weeks.