Oil Price Fundamental Daily Forecast – US Restrictions Would Sink Crude Oil Prices

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are rebounding on Tuesday after falling to its lowest level since December 3 the previous session. The fast bounce-back suggests Monday’s sell-off may have been overdone and fueled by an overreaction to Omicron fears.

At 11:56 GMT, March WTI crude oil is trading $69.45, up $1.09 or +1.59% and March Brent crude is at $72.52, up $0.95 or +1.33%. On Monday, the United States Oil Fund (USO) settled at $49.89, down $0.89 or -1.75%.

Mysteriously, we’re seeing improved appetite for risk, however, investors remain cautious due to the unknown impact of the Omicron coronavirus variant on the global economic recovery. Most traders are chalking up the short-covering rally to position-squaring ahead of the Christmas and New Year’s holiday season.

Some are saying the COVID wall of worry has been priced in. If this is the case then we’re likely to see a choppy, rangebound trade over the near-term.

Europe Considers New Curbs as Omicron Sweeps World

While the United States appears to be willing to take a “wait and see” approach to Omicron, countries across Europe are taking a more aggressive approach that suggests there will be a loss of demand in the region.

According to Reuters, some European countries are considering new curbs on movement on Tuesday as the fast-moving Omicron variant swept the world days before Christmas, throwing travel plans into chaos and unnerving financial markets.

South Korea, the Netherlands, Germany and Ireland are among countries to reimpose partial or full lockdowns, or other social distancing measures. Thailand will reinstate mandatory quarantine for foreign visitors from Tuesday.

Britain, Germany and Portugal were considering further measures. U.K. Prime Minister Boris Johnson said on Monday he was looking at all kinds of measures to keep Omicron under control.

Daily Forecast

It seems like everyone is doing it – imposing restrictions – so why not the United States. Countries that can ill afford another blow to their economies are curtailing economic activity. There is no doubt that oil demand will take a hit. In my opinion, traders are pricing in lower global demand, ex-United States.

Therefore, the wildcard is whether the United States will cave to growing pressure to stem the spread of Omicron and announce some restrictions. I don’t think this has been priced in. If the U.S. imposes restrictions then we could see March WTI at $62.05 – $60.00 rather quickly.

In other news, U.S. crude oil inventories are expected to have fallen for a fourth consecutive week, while distillate and gasoline stockpiles likely rose last week, a preliminary Reuters poll showed on Monday. At 21:30 GMT, the American Petroleum Institute (API) will release its latest figures.