Oil prices fall further on growing Omicron concerns, uncertainty

Brent crude futures settled down $1.50 (Sh129.95), or two per cent, at $73.52 (Sh8,307) a barrel. [Courtesy]

Oil prices fell on Friday and were also down on the week as surging cases of the Omicron coronavirus variant raised fears that new restrictions may hit fuel demand.

“There are concerns about Covid-19 that won’t go away, and the perception that could weigh on demand is putting pressure on the market,” said Bob Yawger, director of energy futures at Mizuho in New York.

Brent crude futures settled down $1.50 (Sh129.95), or two per cent, at $73.52  (Sh8,307) a barrel, while US West Texas Intermediate (WTI) crude dropped $1.52 (Sh171.76), or 2.1 per cent, to settle at $70.86 (Sh8,007) a barrel. Brent was down 2.6 per cent on the week and WTI fell 1.3 per cent.

In Denmark, South Africa and Britain, the number of new Omicron cases has been doubling every two days.

Danish Prime Minister Mette Frederiksen said on Friday that her government would propose new restrictions to limit the spread. 

In the United States, the rapid spread of the Omicron variant has led some companies to pause plans to get workers back into offices. 

“Messages of caution and warnings of a worsening Covid wave are starting to ring louder with the approach of the year-end holiday season, dampening market sentiment,” said Vandana Hari, energy analyst at Vanda Insights. “Crude may remain in a holding pattern, albeit with plenty of price volatility around the mean, in holiday-thinned trading over the next couple of weeks.”

The Organisation of the Petroleum Exporting Countries, Russia and allies, together known as OPEC+, have said they could meet before their scheduled January 4 meeting if changes in the demand outlook warrant a review of their plans to add 400,000 barrels per day of supply in January.

“We could see further consolidation around $70 (Sh7,910) in the coming sessions as we learn more about Omicron, what restrictions it will bring, and whether OPEC+ will react,” said Craig Erlam, senior market analyst at OANDA. The US oil rig count, a leading indicator of output, rose in the week, prompting concerns of potential oversupply.

The oil and gas rig count, an early indicator of future output, rose by three to 579 in the week to December 17, energy services firm Baker Hughes said in its report on Friday.

But despite the Omicron threats to demand, Goldman Sachs said the new variant has had limited impact on mobility or oil demand, adding that it expected oil consumption to hit record highs in 2022 and 2023. 

Oil prices have retreated from multi-year highs in the fourth quarter on improved supplies.