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Oil Price Fundamental Weekly Forecast – Omicron Coronavirus Variant: So Far, No News is Good News for Prices

By:
James Hyerczyk
Updated: Dec 6, 2021, 15:37 UTC

WTI and Brent crude oil recovered from their weekly lows last week after OPEC+ surprised markets by sticking to its plans to boost output slowly.

WTI and Brent Crude Oil

In this article:

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures closed sharply lower last week on worries about demand destruction from the omicron coronavirus variant. There was also residual selling from the previous week’s release of oil from the Strategic Petroleum Reserve (SPR) of several major consuming countries including the United States.

Last week, January WTI crude oil futures settled at $66.26, down $1.89 or -2.77% and February Brent crude oil futures finished at $69.88, down $1.71 or -2.45%. The United States Oil Fund (USO) ETF closed at $48.00, down $1.63 or -3.28%.

OPEC and its allies voted to continue to increase production by 400,000 barrels per day, which on paper looks bearish. However, they could’ve raised output by even more than that amount if they wanted to try to offset the oil released from the SPR.

Furthermore, OPEC+ said it would be willing to make changes to its production if demand were to drop dramatically due to an outbreak in Omicron. This is the statement that turned the market around last week.

OPEC+ Recap

WTI and Brent crude oil recovered from their weekly lows last week after OPEC+ surprised markets by sticking to its plans to boost output slowly.

Initially, the market sold off dramatically after OPEC and its allies issued a bit of a surprise by sticking to plans to boost output monthly by 400,000 barrels per day. It was the latest in a series of events that have caused crude to slump wildly, having lost 24% in the last three weeks.

Oil futures attempted to rebuild the rally by the end of the week, but the combination of uncertainty around the Omicron variant, efforts by governments to stem the tide of new infections and expectations for more supply kept traders on their toes.

OPEC+ decided on Thursday to boost supply in January in line with previous months. Since August, it has been gradually winding down record cuts agreed to in 2020.

The White House said it welcomed the decision, but added that the United States had no plans to reconsider its decision to release crude reserves.

OPEC+ has been adding 400,000 bpd to its target, but falling well short of that on a monthly basis due to underinvestment in several members’ oil industries.

Weekly Outlook

The market has settled down considerably since OPEC+ said it would be willing to make changes in production if demand falls because of the Omicron coronavirus variant. This shifts the focus back to the variant this week, which so far has not hurt demand too much.

Early indications of the severity of the Omicron COVID-19 variant are “a bit encouraging” but more information is still needed, according to leading U.S. pandemic adviser Dr. Anthony Fauci.

Reports from South Africa, where it emerged and is becoming the dominant strain, suggest hospitalization rates have not increased alarmingly.

“Though it’s too early to really make any definitive statements about it, thus far it does not look like there’s a great degree of severity to it,” Fauci said.

“Thus far, the signals are a bit encouraging. But we have really got to be careful before we make any determinations that it is less severe, or it really doesn’t cause any severe illness, comparable to Delta.

WTI and Brent crude oil could be supported this week if the impact of the new variant fails to bring as much demand destruction as the Delta variant. It may not be bullish enough to lead the markets to a new high, but it could help recover a large chunk of the month-long sell-off.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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