(Bloomberg) — Oil is on track to post a weekly decline after a volatile few days that saw traders grow more concerned about the demand impact from the omicron variant and tighter monetary policy.
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Futures in New York fell as much as 3.4% on Friday, to briefly trade below $70 a barrel and was set for a 1.4% decline for the week. Daily Covid-19 cases in the U.K. have jumped to a record, while hospitalizations have surged across the U.S. Prices also weakened on concern that steps by the Federal Reserve and other central banks to tame inflation will hinder economic growth. Brent crude was on track to fall 2.7% on the week.
“We need to be ready for Covid headlines to continue driving the oil market on a day-to-day basis at least until the remainder of this winter,” said Pavel Molchanov, an analyst at Raymond James & Associates Inc. “Right now, Covid is the number one variable for demand on a daily basis.”
Signs are also emerging of softening oil demand in Asia, while the International Energy Agency said this week that the global market had returned to surplus as omicron impedes travel. The weakness is showing up in the market’s structure, with Brent flicking in and out of a bearish contango, which signals oversupply.
“Crude oil is struggling amid raised concerns about the fast-spreading omicron virus and its impact on global demand,” said Ole Sloth Hansen, head of commodities research at Saxo Bank A/S in Copenhagen. “Also, unseasonal warm weather in Asia is potentially softening demand for fuels toward heating and power generation.”
Iran nuclear talks seventh round of talks were dismissed in Vienna, with after a Joint Commission Meeting and will resume shortly, signaling a greater prospect of Iranian barrels coming back to the market. The European Union’s Envoy Enrique Mora said parties have have reestablished common ground for negotiations but that they have weeks, not months, to revive the 2015 Iran deal.
“Additional Iranian crude barrels hitting the market won’t be happening anytime soon. WTI crude appears poised to hover around the $70 area,” said Edward Moya senior market analyst at OANDA.
This week has seen traders contend with conflicting signals on demand and supply. Those range from the central banks’ moves, new restrictions to limit the spread of omicron, and declining inventories in the U.S. That has caused a generally risk-off attitude in oil markets, leading the aggregate volume of futures contracts to drop over the past two sessions.
Omicron is starting to limit the movement of people in some part of the world. The City of London district has transformed from a raucous hub with thousands of workers celebrating Christmas into a no-party zone in the space of a week. Almost half of staff didn’t go to the office on Monday, the lowest since September, according to data compiled by Google, which tracks the location of its users.
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