The black liquid ended the week bearish, posting its sixth consecutive weekly loss. This comes as investors adopt a watch and hold stance as they monitor the current spread of the newest COVID-19 variant, despite the Organization of Petroleum Exporting Countries and its allies (OPEC+) signaling that it was ready to pull back on production at any time if fears over the Omicron variant continued to hurt demand for energy.
After a bearish start to the week, the prices rose on Thursday and remained higher for most of Friday. However, its bullish momentum seen in the last two days was not enough to give both benchmarks a positive price to end the week.
The United States’ benchmark, the West Texas Intermediate (WTI) ended the week down 2.77%, trading $66.26. For the last 6 weeks, the WTI is down 22.42%, after hitting a seven-year high of $85.41. The global benchmark, the Brent crude, the global benchmark for oil, ended the week down 3.91%, trading $69.88. For the last 6 weeks, the Brent is down 19.40% for the past six weeks combined, after hitting a 2014 high of $86.70.
What you should know
The Omicron strain appears to have turned over the 2021 oil rally, bringing to a halt the surge in crude prices, which many thought was headed to $100 a barrel, or minimum of $90, by the year-end. Nonetheless, even with the price reversal of the past six weeks, WTI remains up 36% for the year while Brent shows a 35% gain.
Since health authorities announced the first U.S. case of the Omicron variant in California on Wednesday, there have been at least eight more infections reported, five of them in New York City — an early epicenter of Covid-19 in 2020.
During the week, the OPEC+ cartel agreed to stick to its plan of adding 400,000 barrels per day (bpd) supply in January 2022. However, the cartel left the door open to changing policy swiftly, explaining that they could change this policy if the new omicron COVID-19 variant hits fuel demand and was prepared to meet before the next meeting scheduled for Jan. 4, 2022, if needed.
What they are saying
Analysts read the initial bounce back as a sign of the market’s confidence in OPEC+’s decision to leave its output unchanged for now, with a caveat for change should demand collapse going into the first quarter 2022.
John Kilduff, founding partner of Again Capital, an energy hedge fund in New York stated, “Whatever initial comfort the market took with the OPEC decision seems to have evaporated and now there are fears again that this thing is going to come back and bite us in the rear.”
New York City Health Commissioner Dave Chokshi said the cases in the city indicated a community spread of the Omicron, independent of infections that had directly occurred from travel to South Africa, where the strain was first detected. He stated, “This is not just people who are traveling to southern Africa or to other parts of the world where Omicron has already been identified.”
Investors are now focused on the spread of the virus and the level of lockdown measures taken by developing and developed countries all over the world before a definitive direction of where the price of oil will be headed for the time being. The spread of the new variant coupled with the OPEC+ supply decision, will largely be the main catalyst for price appreciation and depreciation in the coming weeks.